-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, kfdccZLR/AHDv5ssAtpWTJZExz3dhnThKzbNcNz3wzePwL0LS/OwHoWcr8iCdqSU 5dSPcvhSdmDsWEOF4DTwHA== 0000950148-94-000427.txt : 19941108 0000950148-94-000427.hdr.sgml : 19941108 ACCESSION NUMBER: 0000950148-94-000427 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19931231 FILED AS OF DATE: 19941103 SROS: AMEX SROS: BSE SROS: MSE SROS: NYSE SROS: PSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: HOTEL INVESTORS TRUST /MD/ CENTRAL INDEX KEY: 0000048595 STANDARD INDUSTRIAL CLASSIFICATION: 6798 IRS NUMBER: 520901263 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-06828 FILM NUMBER: 94557512 BUSINESS ADDRESS: STREET 1: 11845 W OLYMPIC BLVD STREET 2: SUITE 550 CITY: LOS ANGELES STATE: CA ZIP: 90064 BUSINESS PHONE: 3105753900 MAIL ADDRESS: STREET 1: 11845 W OLYMPIC BLVD STREET 2: SUITE 550 CITY: LOS ANGELES STATE: CA ZIP: 90064 FORMER COMPANY: FORMER CONFORMED NAME: HOTEL INVESTORS TRUST DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: HOTEL INVESTORS DATE OF NAME CHANGE: 19800720 FORMER COMPANY: FORMER CONFORMED NAME: MARRIOTT INN PARTICIPATING INVESTORS DATE OF NAME CHANGE: 19720106 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HOTEL INVESTORS CORP CENTRAL INDEX KEY: 0000316206 STANDARD INDUSTRIAL CLASSIFICATION: 6500 IRS NUMBER: 521193298 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-07959 FILM NUMBER: 94557513 BUSINESS ADDRESS: STREET 1: 11845 W OLYMPIC BLVD STREET 2: SUITE 560 CITY: LOS ANGELES STATE: CA ZIP: 90064 BUSINESS PHONE: 3105753900 MAIL ADDRESS: STREET 1: 11845 W OLYMPIC BLVD STREET 2: SUITE 560 CITY: LOS ANGELES STATE: CA ZIP: 90064 10-K/A 1 FORM 10-K/A2 FOR THE PERIOD ENDED 12/31/93 1 =============================================================================== SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-K/A2 /x/ JOINT ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 (FEE REQUIRED) For the fiscal year ended December 31, 1993 ------------------------ OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) For the transition period from to ----- -----
Commission File Number: 1-6828 Commission File Number: 1-7959 HOTEL INVESTORS HOTEL INVESTORS TRUST CORPORATION (Exact name of registrant as specified (Exact name of registrant as specified in its charter) in its charter) Maryland Maryland (State or other jurisdiction (State or other jurisdiction of incorporation or organizaiton) of incorporation or organization) 52-0901263 52-1193298 (I.R.S. employer identification no.) (I.R.S. employer identification no.) 11845 W. Olympic Blvd., Suite 550 11845 W. Olympic Blvd., Suite 560 Los Angeles, California 90064 Los Angeles, California 90064 (Address of principal executive (Address of principal executive offices, including zip code) offices, including zip code) (310) 575-3900 (310) 575-3900 (Registrant's telephone number, (Registrant's telephone number, including area code) including area code)
2 Securities registered pursuant to Section 12(b) of the Act: Name of each exchange Title of each class on which registered ------------------- ------------------- Shares of Beneficial Interest, $1.00 par value, | of Hotel Investors Trust ("Trust Shares") | paired with | New York Stock Exchange Shares of Common Stock, $0.10 par value, | of Hotel Investors Corporation ("Corporation | Shares") | 1986 Warrants to purchase Trust Shares | paired with | American Stock Exchange 1986 Warrants to purchase Corporation Shares | Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the Registrants (1) have filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days. Yes X No . ----- ----- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of each Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K [X]. As of March 25, 1994, the aggregate market value of the Registrants' voting stock held by non-affiliates(1) was $18,627,000. As of March 25, 1994, the Registrants had outstanding 12,132,948 Trust Shares and 12,132,948 Corporation Shares. - - - --------------------------- (1)For purposes of this Joint Annual Report only, includes all voting shares other than those held by the Registrants' Trustees or Directors and executive officers or by persons known to either Registrant to hold of record or beneficially 5% or more of such Registrant's voting shares. =============================================================================== The undersigned Registrants hereby amend the the following items, the statements, exhibits or other portions of their Annual Report on Form 10-K for the fiscal year ended December 31, 1993 as set forth in the pages attached hereto: 3 PART I ITEM 3. LEGAL PROCEEDINGS. Naomi Horowitz v. Hotel Investors Trust et al.; Joyce Uttan I.R.A. et al v. Hotel Investors Trust et al As of the filing of this Joint Annual Report, two purported class actions are pending in the United States District Court for the Southern District of California against the Trust, the Corporation, Ronald A. Young and John F. Rothman. The first purported class action was commenced in August 1991 by Naomi Horowitz. As amended, the complaint filed by Ms. Horowitz (the "Horowitz complaint") alleges that the defendants violated federal and California securities laws and the federal Racketeer Influenced and Corrupt Organizations Act ("RICO"), and acted fraudulently, in connection with Hotel Investors' public disclosures with respect to the Trust's purchase of its two hotel/casinos and the Ramada Inn in Indian Wells, California from partnerships controlled by Messrs. Young and Rothman. The Horowitz complaint purports to assert claims on behalf of a class consisting of all persons who were allegedly damaged by their purchase of Paired Shares between March 23, 1987 and May 29, 1990. The second purported class action was filed in February 1992 by the Joyce Uttan I.R.A. and three individuals. This complaint (the "Uttan complaint") also alleges violations by the defendants of Federal and California state securities laws and RICO in connection with statements made by Hotel Investors with respect to the purchases of the hotel/casinos and the Indian Wells hotel, and further alleges that Mr. Rothman violated the Employee Retirement Income Securities Act of 1974 ("ERISA") by causing monies held in a pension plan established for casino employees at the King 8 to be invested in Paired Shares. The Uttan complaint purports to assert claims on behalf of two classes consisting of persons who purchased Paired Shares between either October 10, 1986 or November 22, 1988 and, in either case, the date the original Horowitz complaint was filed, and a third class consisting of participants in the employee pension plan who were allegedly damaged by the purchase of Paired Shares between July 1, 1985 and the date of the plan's dissolution. Each of the above-described complaints seeks compensatory damages, rescission and/or treble and exemplary damages plus prejudgment interest, and costs of suit that include attorneys' fees; the Uttan complaint also seeks statutory damages under ERISA on behalf of the third purported class described in this complaint. The complaint filed on March 31, 1992 by Carno and Sonem, allegedly on behalf of the Trust and the Corporation, in the Superior Court of the State of California for San Diego County, against Messrs. Young, Rothman, Graeme W. Henderson, Sherwin L. Samuels, Bruce M. Ford, Earle F. Jones and Howard B. Levenson, and nominally against the Trust and the Corporation, alleges that in authorizing the Trust's purchase of the hotel/casinos and the Indian Wells property, the individual defendants (each of whom was at the time a Trustee or a Director) breached their fiduciary duties, acted in a grossly negligent manner and committed corporate waste. The Carno/Sonem complaint seeks compensatory damages from each of the individual 3 4 defendants, as well as an order requiring the individual defendants to return to the Trust and the Corporation certain remuneration and costs of suit. As of March 25, 1994, plaintiffs and defendants in the Horowitz, Uttan and Carno/Sonem cases have agreed in principle that subject to conditional certification for settlement purposes of the classes described in the two purported class action complaints and to certain other court approval and to certain other conditions, the Carno case will be dismissed with prejudice, and all claims that were made in the Shareholder Litigation will be released, upon the defendants' establishment of a $3,205,000 cash settlement fund to be distributed to members of the plaintiff classes certified in the Horowitz and Uttan cases. Of the settlement fund amount, $2,500,000 will be paid by the insurance company that issued Hotel Investors' directors and officers' policy applicable to the periods to which the Shareholder Litigation relates, $400,000 will be paid by the Trust and the Corporation, and $350,000 will be paid by Messrs. Rothman and Young. In addition, the defendants have agreed to establish a separate $45,000 fund to be used for purposes of notifying the class and otherwise administering the settlement. Legal fees and other costs incurred by the defendants in the Shareholder Litigation prior to October 12, 1993 would be paid by the Trust and the Corporation; subsequent defense costs would be paid by the above-mentioned insurance company. The agreement in principle also contemplates that the Board of Trustees and the Board of Directors of Hotel Investors will establish a joint transaction committee of independent Trustees and Directors to make recommendations to those Boards with respect to any transaction having a fair market value of $20 million or more that may be proposed in the future by Hotel Investors' managements, and that Messrs. Rothman and Young will provide to the Corporation an irrevocable letter of credit in the amount of $800,000 to be drawn upon by the Corporation conditioned upon final court approval of the settlement (such amount will be recorded by the Corporation as income upon final court approval). If the final settlement is approved by the court, certain hotel management arrangements and agreements between Western Host and certain partnerships of which Messrs. Rothman and Young are general partners will be terminated. See "Management Obligations of Western Host" included in Item 13 of this Joint Annual Report. A settlement agreement implementing the terms of the agreement in principle is being prepared and is anticipated to be signed in April 1994. However, there can be no assurance that the settlement agreement will be consummated or that the settlement will be ultimately approved by the court. Wells Fargo Bank, N.A. et al v. Hotel Investors Trust As previously reported, on April 10, 1992, the Lenders filed a complaint against the Trust in the Superior Court of the State of California for the County of San Diego, alleging breach of contract by the Trust and seeking to recover the principal and interest then owed by the Trust to the Lenders pursuant to the 1988 Loan Agreement and the Note Agreements; the Lenders subsequently sought a right to attach order and a writ of attachment with respect to all of the Trust's assets. On June 12, 1992, the Trust filed a cross-complaint in this action, alleging that in connection with the debt restructuring negotiations the Lenders acted fraudulently, made negligent misrepresentations, breached their contracts with the Trust, intentionally interfered with the Trust's business relations and violated the federal RICO statute, and seeking damages based 4 5 on promissory estoppel and otherwise. In January 1993, the Trust and the Lenders agreed to a voluntary dismissal of this litigation with prejudice in connection with the execution and delivery of the Credit Agreement. Northview Corporation Bankruptcy Information with respect to the reorganization of Northview Corporation, the lessee of the Trust's hotels in Sacramento, Rosemead, and Woodland Hills, California, and the settlement of the Trust's claims against Northview in connection therewith is contained in Items 1 and 2 of this Joint Annual Report under the caption "Northview Corporation". 5 6 PART II ITEM 6. SELECTED FINANCIAL DATA. The following data sets forth certain financial information for the Trust, the Corporation, and the Trust and the Corporation on a combined basis. This information is based on and should be read in conjunction with the financial statements and the notes thereto appearing elsewhere in this Joint Annual Report. 6 7 (in thousands, except per share amounts)
December 31, --------------------------------------------------------------------- 1993 1992 1991 1990 1989 ------ ------ ------ ------ ------ Operating Data - - - -------------- Revenue: Trust . . . . . . . . . . . . . . $ 20,342 $ 26,784 $ 29,550 $ 32,866 $ 31,389 Corporation . . . . . . . . . . . 114,828 116,172 110,361 112,555 110,587 Combined (1) . . . . . . . . . . . 117,155 117,656 113,436 117,024 115,619 Net Income (Loss): Trust (2) . . . . . . . . . . . . (3,889) (9,818) (10,952) (13,362) (48,083) Corporation (2) . . . . . . . . . (3,143) (9,925) (11,132) (14,224) (12,256) Combined . . . . . . . . . . . . . (7,032) (19,743) (22,084) (27,586) (60,339) Net Income (Loss) Per Share: Trust . . . . . . . . . . . . . . $ (0.32) $ (0.81) $ (0.90) $ (1.10) $ (3.96) Corporation . . . . . . . . . . . (0.26) (0.82) (0.92) (1.17) (1.01) Combined . . . . . . . . . . . . . --------- --------- --------- --------- --------- $ (0.58) $ (1.63) $ (1.82) $ (2.27) $ (4.97) ========= ========= ========= ========= ========= Balance Sheet Data ------------------ Total Assets: Trust . . . . . . . . . . . . . . $ 232,845 $ 245,540 $ 246,498 $ 266,487 $ 274,316 Corporation . . . . . . . . . . . 49,993 53,611 55,807 31,946 34,580 Combined (1) . . . . . . . . . . . 195,352 210,945 221,917 240,998 263,414 Total Debt: Trust . . . . . . . . . . . . . . 156,526 157,541 158,295 165,730 151,611 Corporation . . . . . . . . . . . 101,846 100,246 66,873 44,960 39,260 Combined (1) . . . . . . . . . . . 170,886 170,297 171,271 166,591 l152,781 Shareholders' Equity (Deficit): Trust . . . . . . . . . . . . . . 72,205 76,371 86,188 97,087 117,727 Corporation . . . . . . . . . . . Combined . . . . . . . . . . . . (58,879) (55,752) (45,828) (34,696) (20,487) 13,326 20,351 40,083 62,104 96,671 Shares outstanding at end of period. 12,133 12,133 12,133 12,133 12,132 Cash Flow and Dividend Data --------------------------- Net cash provided by (used in) operating activities: Trust . . . . . . . . . . . . . . 3,136 2,773 (8,812) 8,921 7,270 Corporation . . . . . . . . . . . 2,396 1,917 2,654 (2,659) 2,856 Combined . . . . . . . . . . . . . 5,532 4,690 (6,158) 6,262 10,126 Net cash provided by (used in) investing activities: Trust . . . . . . . . . . . . . . . 2,474 (161) 12,889 (17,621) (26,579) Corporation . . . . . . . . . . . . (4,426) (942) 472 10,731 12,313 Combined . . . . . . . . . . . . . (3,645) (1,514) 12,159 (7,058) (14,307) Net cash provided by (used in) financing activities: Trust . . . . . . . . . . . . . . . (7,307) (850) (7,507) 6,583 11,738 Corporation . . . . . . . . . . . . (1,138) (816) (834) (309) (7.061) Combined . . . . . . . . . . . . . (6,752) (1,255) (7,139) 6,442 4,718 Dividends to shareholders Trust (3) . . . . . . . . . . . . $ 0 $ 0 $ 0 $ 7,644 $ 12,132 Dividends per share Trust (3) . . . . . . . . . . . . $ 0.00 $ 0.00 $ 0.00 $ 0.63 $ 1.00 7
8 - - - --------------------------- (1) Trust and Corporation amounts do not add to Combined amounts due to accounting elimination entries. (2) For the Trust, includes gains (losses) on sales of ($53,000), ($791,000), $390,000, and $156,000 for the years ended December 31, 1993, 1992, 1991 and 1989, respectively, and provisions for investment losses of $2,369,000, $3,419,000, $8,867,000, $15,100,000 and $51,208,000 in the years ended December 31, 1993, 1992, 1991, 1990 and 1989, respectively. For the Corporation, includes gains on sales of $74,000, $4,000 and $1,208,000 for the years ended December 31, 1993, 1992, and 1991, respectively, and provisions for investment losses of $713,000, $3,047,000 and $4,593,000 in the years ended December 31, 1991, 1990 and 1989, respectively. (3) Presented only for the Trust, as the Corporation did not pay dividends for the periods presented. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. As discussed in Items 1 and 2 of this Joint Annual Report under the caption "Recent Developments - Debt Restructuring", on January 28, 1993 the Trust entered into the Credit Agreement which restructured its previously unsecured notes payable to two banks and three insurance companies as Secured Term Loan and a secured Revolving Line of Credit. Although the Trust is not in default under the Credit Agreement through the date of this Joint Annual Report, the Trust's ability to comply in the future with the requirements (primarily the principal repayments required - see below) of the Credit Agreement cannot presently be determined. Further, because of the substantial operating losses and cash flow deficiencies experienced by the Corporation, which also has a deficiency in net assets, the ultimate recovery of all amounts due to the Trust from the Corporation is highly uncertain. These conditions raise substantial doubts about the Companies' ability to continue as going concerns. As required under the terms of the Credit Agreement, a $1,000,000 payment was made on the Secured Term Loan on August 31, 1993. If the Trust continues to comply with the terms of the Credit Agreement, minimum cumulative principal payments for principal owed as of December 31, 1993 will be as follows: Cumulative Date Principal Payments ---- ------------------ August 31, 1994 $ 10,000,000 August 31, 1995 $ 19,000,000 August 31, 1996 $ 27,000,000 August 31, 1997 $ 52,000,000 April 30, 1998 $128,802,000 In order to comply with the principal payment requirements of the Credit Agreement, the Trust and the Corporation must sell properties. As of December 31, 1993, properties having net book values of $15,699,000 and $932,000 for the Trust and the Corporation, respectively, had been identified for sale. 8 9 In determining which properties were identified for sale, the Companies considered for each property current and anticipated economic performance, local market trends, physical condition and capital requirements. In addition, properties with continuing negative or declining cash flows and having the least potential for improvement were identified for future sale. For information regarding the terms of the property sales completed during 1993 and for which offers had been accepted at December 31, 1993 see "Recent Developments - Certain Property Sales" included in Items 1 and 2 of this Joint Annual Report. As of the date of this Annual Report, the Trust and the Corporation have no commitments to sell properties other than those described under "Recent Developments - Certain Property Sales and Related Transactions". Any sales of hotel properties will impact revenues and expenses of the Trust and the Corporation. Because the Credit Agreement requires the net proceeds from hotel sales to be applied to the repayment of debt, sales of hotels will result in decreased interest expense for the Trust. In addition, the income of the Trust will be decreased because the Trust will no longer receive rental income from the Corporation in respect of a sold property, which may be offset by payments to the Trust on any notes receivable generated from a sale. Sales of hotel properties will also decrease the depreciation and amortization expenses of the Trust. The aggregate impact on revenues and expenses will depend on the terms and timing of the sales of the properties to be sold. The Credit Agreement requires the Trust and the Corporation to maintain on a combined basis, a specified minimum adjusted net worth and a specified minimum ratio of cash to cash interest plus capital expenditures, as defined. At December 31, 1993, the Companies' were in compliance with these covenants. The Credit Agreement contains covenants that restrict, among other things, the Trust's ability to acquire or dispose of assets, to make investments and to incur additional indebtedness, and covenants that prohibit the payment of distributions to shareholders. In addition to establishing certain operating restrictions and reporting requirements, the Credit Agreement establishes daily operating thresholds, as defined. If these thresholds are exceeded by the Trust and the Corporation, the excess amounts must be applied to reduce the borrowings then outstanding under the Revolving Line of Credit, but amounts so applied are available for future borrowings. Further, the Trust may be required to continue to restructure the indebtedness of the Corporation to the Trust on an annual or long-term basis to allow the continued survival of the Corporation. 9 10 Results of Operations for the Years Ended December 31, 1993 and 1992 The Trust. Rents from Corporation totaled $16,481,000 and $21,177,000 for the years ended December 31, 1993 and 1992, respectively. Approximately $1,106,000 of the decrease in rents resulted from the sale of hotels in Irving, Texas (March 1992), Merrimack, New Hampshire (July 1992), Spartanburg, South Carolina (September 1992), Smyrna, Georgia (January 1993), Tucker, Georgia (June 1993), and St. Louis, Missouri (December 1993). The remaining decrease was primarily due to the restructuring of eighteen of the leases with the Corporation effective January 1, 1993, which reduced the fixed and percentage rents payable by the Corporation. For additional information regarding the lease restructuring, see "Liquidity and Capital Resources" below. Interest from the Corporation decreased to $1,534,000 from $4,123,000 for the years ended December 31, 1993 and 1992, respectively. The decrease in interest income is a result of the January 1, 1993 restructuring of intercompany borrowings and advances made to the Corporation, with the exception of the Milwaukee notes, into non-interest bearing demand notes for calendar years 1993 and 1994, with interest at prime plus 2% payable monthly thereafter. For additional information with respect to Rents and Interest from the Corporation in future periods, see "Liquidity and Capital Resources" below. Interest from mortgage and other notes receivable increased by $187,000 for the year ended December 31, 1993 as compared to 1992. The increase resulted from the additional interest income related to the mortgage notes delivered to the Trust in connection with the sales of the hotel properties located in Irving, Texas, Merrimack, New Hampshire, Spartanburg, South Carolina, and Tucker, Georgia, having original principal balances of $1,650,000, $1,440,000, $775,000, and $1,985,000, respectively. The Trust and the Corporation periodically estimate the value of their hotel assets and compare these values to the net book values of the hotel assets. For hotel assets not held for sale, the undiscounted future cash flows of the assets, on a hotel- by-hotel basis, are compared to the net book value of the assets; and if the undiscounted future cash flows are less than the net book value of the assets, the excess of the net book values over the estimated fair values is charged to current earnings. When it is the opinion of management that the fair value of a hotel that has been identified for sale, is less than the net book value of the hotel a reserve for losses is established. Fair value is determined based upon the discounted cash flow of the properties at rates (11.0% to 14.5%) deemed reasonable for the type of property and prevailing market conditions, appraisals and, if appropriate, then current estimated net proceeds of sale. In determining whether to accept an offer for the sale of a property, management considers the fairness of the offer in comparison to the value of the property, the terms of the offer, whether the offer is all cash or includes seller financing and the anticipated availability of cash necessary in order to meet the next principal payment required under the Credit Agreement. Losses on sales of hotel assets for the year ended December 31, 1993 totaling $(53,000) reflected the sales of hotels in Smyrna and Tucker, Georgia and the St. Louis, Missouri property. For additional information regarding the terms of such sales of hotels see "Recent Developments - Certain Property Sales and Related Transactions" included in Items 1 and 2 of this Joint Annual Report. 10 11 As described above, effective January 28, 1993, the Trust restructured its debt. See "Liquidity and Capital Resources" below. Management concluded that this debt restructuring (the "Debt Restructuring") represented a "troubled debt restructuring" as defined under generally accepted accounting principles, and accordingly, upon execution of the definitive agreement, accrued all known current or future identifiable debt restructuring costs as of December 31, 1992. No additional loan restructuring costs were incurred during the year ended December 31, 1993. Interest expense totaled $14,020,000 and $12,959,000 for the years ended December 31, 1993 and 1992, respectively, an increase of $1,061,000. The increase was primarily due to an increase in the average interest rate and an increase in the borrowings outstanding under the Term Loan and Revolving Line of Credit. The sales of the properties discussed above and an increase in the provision for investment losses are the primary reasons for the decline in depreciation and amortization expense of $1,164,000 between 1993 and 1992. Administrative and operating expenses totaled $2,212,000 and $2,538,000 for the years ended December 31, 1993 and 1992, respectively, a decrease of $326,000. The decrease was primarily the result of lower legal and professional fees unrelated to the debt restructuring. Administrative and operating expenses included an accrual of $219,000 at December 31, 1993 in connection with the settlement of the Shareholder Actions (see "Legal Proceedings" included in Item 3 of this Joint Annual Report). During 1993 a provision for investment losses (a non-cash charge to operations) totaling $2,369,000 was recorded primarily as a result of the acceptance of all cash offers to sell hotels previously identified for sale at amounts lower than the then current net book values, (which cash was used to meet the next principal payment due under the terms of the Credit Agreement) and the continuing deterioration of hotel values in the Southeast. No distributions were made by the Trust for the years ended December 31, 1993 and 1992. For information with respect to restrictions on distributions imposed by the Credit Agreement see "Distributions - The Trust" included in Item 5 of this Joint Annual Report. The Trust's net loss and net loss per share totaled $3,889,000, or $0.32 per share, and $9,818,000, or $0.81 per share, for the years ended December 31, 1993 and 1992, respectively. The Corporation. Hotel revenues totaled $86,903,000 and $88,812,000 for the years ended December 31, 1993 and 1992, respectively, representing a decrease of $1,909,000. The hotel sales described under the caption "The Trust" above resulted in decreased revenue of $2,373,000, which was partially offset by increased revenues of $835,000 resulting from increased average occupancy and average room rates for properties which continue to be operated by the Corporation and leased from the Trust. The following table summarizes average occupancy and average room rates for properties which continue to be operated by the Corporation under lease from the Trust: 11 12 Year Ended December 31, ------------------------------------------ 1993 1992 ---- ---- Occupancy Rate 63% 59% Average Room Rate $56.59 $53.18 Management of the Corporation believes that the improved national economic trends experienced during 1993 resulted in increased business and pleasure travel and related increases in average occupancy rates and average room rates. Gaming revenues totaled $27,505,000 and $26,150,000 for the years ended December 31, 1993 and 1992, respectively. Management believes the increased revenue of $1,355,000 at the two gaming facilities is a result of increased customer travel to the Las Vegas area, and in particular, increased customer traffic due to the close proximity of the King 8 Hotel and Casino to several large hotel/casinos completed during 1993. Management fees and other income decreased by $737,000 to $222,000 for the year ended December 31, 1993 as compared to 1992. The decreases were primarily a result of the subcontracting of the management obligations of Western Host with respect to seven hotels not owned by the Trust, to Westland Hotel Corporation. For additional information pertaining to the subcontracts, see Note 10 of the Notes to Financial Statements and Item 13 of this Joint Annual Report. For information regarding the carrying value of properties held for sale, see the Trust above. Gain on sales of hotel assets totaled $74,000 and $4,000 for the years ended December 31, 1993 and 1992, respectively, reflecting the property sales described above. Hotel expenses totaled $68,132,000 and $68,620,000, or 78% and 77% of hotel revenues, for the years ended December 31, 1993 and 1992, respectively. The increase in hotel expenses as a percentage of hotel revenues is principally attributable to the payment of management fees to third party operators under the 11 management contracts entered into in December 1992 and increased revenues and expenses at the Dallas Marriott Park Central where operating expenses are typically higher as a percentage of revenues than at other hotel properties operated by or for the Corporation. Gaming expenses totaled $24,055,000 and $23,699,000, or 87% and 91% of gaming revenues, for the years ended December 31, 1993 and 1992, respectively. Increased gaming revenues, coupled with improved casino win percentages, resulted in the decreases in gaming expenses as a percentage of gaming revenues. For information with respect to rent and interest to the Trust during the years ended December 31, 1993 and 1992, see "The Trust - Results of Operations for the Years Ended December 31, 1993 and 1992" above and "Liquidity and Capital Resources" below. Administrative and operating expenses decreased by $827,000, or 22%, for the year ended December 31, 1993 as compared to 1992. The decrease is primarily the result of a reduction in the level of corporate staff. Administrative and operating expenses include an accrual 12 13 of $219,000 at December 31, 1993 in connection with the settlement of the Shareholder Actions (see "Legal Proceedings" included in Item 3 of this Joint Annual Report). The Corporation's net loss totaled $3,143,000, or $0.26 per share, in 1993, as compared to $9,925,000, or $0.82 per share, for 1992. Results of Operations for the Years Ended December 31, 1992 and 1991 The Trust. Rents from Corporation totaled $21,177,000 and $22,093,000 for the years ended December 31, 1992 and 1991, respectively. The decrease resulted primarily from the sale of hotels in Indian Wells, California (May 1991), Brunswick, Georgia (July 1991), Albany, Georgia (September 1991), Irving, Texas (March 1992), Merrimack, New Hampshire (July 1992) and Spartanburg, South Carolina (September 1992) and the termination of the ground and building lease for the St. Charles, Missouri property in August 1991. The reductions in rental income resulting from property sales were partially offset by additional rental income from the Columbus, Ohio property following the Trust's reacquisition of that hotel in January 1992. Interest from the Corporation decreased from $4,382,000 in 1991 to $4,123,000 in 1992. In July 1991, a limited partnership of which the Corporation is the general partner acquired the Milwaukee Marriott and assumed the maker's obligations under an $11,000,000 promissory note held by the Trust. The increase in interest income from the Corporation that resulted from this debt being classified as intercompany debt was more than offset, however, by decreases in the interest rate charged by the Trust to the Corporation (which rate is tied to the prime rate of one of the Banks.) For information with respect to anticipated reductions in rents and interest income from the Corporation in future periods, see "Liquidity and Capital Resources" below. Interest from mortgage and other notes receivable decreased by $339,000 in the year ended December 31, 1992 as compared to 1991. The decrease resulted primarily from the cancellation of the mortgage note receivable for the Best Western North, Columbus, Ohio and the partial prepayment of the note receivable on the Ramada Inn in Jefferson City, Missouri in January 1992 and the July 1991 reclassification of the Milwaukee Marriott mortgage note receivable as a note due from the Corporation. These decreases were partially offset by additional interest income related to notes receivable delivered to the Trust in connection with the hotel sales described above. The reduction in other income of $82,000 for the year ended December 31, 1992 as compared to 1991 was primarily the result of a one-time recognition of income in 1991 resulting from the expiration of a third-party option to acquire the King 8 and the Trust's retention of the deposit paid in connection with that option. For information regarding the carrying value of properties held for sale and the factors considered in determining whether to accept an offer for sale see "Results of Operations for the Years Ended December 31, 1993 and 1992", above. Losses on sales of hotel assets for the year ended December 31, 1992 ($791,000) reflect the sale of hotels in Spartanburg, South Carolina, Merrimack, New Hampshire, and Irving, Texas and the recognition of a $91,000 13 14 discount in connection with the early payoff of the mortgage note receivable relating to the Brunswick, Georgia property. Gain on sales of hotel assets for the year ended December 31, 1991 of $390,000 reflects the sale of three properties and the termination of the ground and building lease for the St. Charles, Missouri property described above. Interest expense decreased between 1991 and 1992 by $2,900,000. The decrease was due to a reduction in the interest rate applicable to borrowings from the Lenders and the application of proceeds from property sales to reduce those borrowings. During the years ended December 31, 1992 and 1991, provisions for investment losses (a non-cash charge to operations) totaling $3,419,000 and $8,867,000, respectively, were made, which amounts represent the difference between the net book value of the Trust's properties which had been identified for sale and their estimated fair values as well as the discounted future cash flows for properties not held for sale which had undiscounted future cash flows that were less than net book value. The 1992 provision was the result of deterioration of hotel values in the Southeast and the acceptance of offers for the sale of hotels at amounts less than net book value. The 1991 provision primarily resulted from the continuing decline in the market for small to medium sized hotel/casino properties in Las Vegas, overbuilding in the hotel markets, difficulty in obtaining third party financing and the impact of the economic recession. Depreciation and amortization decreased by $2,236,000 between 1991 and 1992, primarily as a result of the above- mentioned property sales and the provisions for investment losses recorded during 1992 and 1991. Administrative and operating expenses decreased by $411,000 in 1992 as compared to 1991 principally as a result of the termination of certain Trust employees in April 1991. Loan restructuring costs for the year ended December 31, 1992 totaled $10,892,000, as compared to $3,797,000 for 1991. Of the 1992 costs, $8,713,000 was accrued in December 31, 1992 for future costs that were known and identifiable in connection with the debt restructuring. Upon execution and delivery of the Credit Agreement, $700,000 was paid to the Lenders in cash, and $4,032,000 was added to the balance of the Term Loan, pursuant to provisions of the Credit Agreement requiring that the Lenders' debt restructuring costs be so paid or reimbursed by the Trust. No distributions were made by the Trust for the years ended December 31, 1992 and 1991. For information with respect to restrictions on distributions imposed by the Credit Agreement see "Distributions - The Trust" included in Item 5 of this Joint Annual Report. The Trust's net loss totaled $9,818,000, or $0.81 per share, for 1992 as compared to $10,952,000, or $0.90 per share, for 1991. The Corporation. Hotel revenues increased between 1991 and 1992 by $3,656,000. An increase resulting from the inclusion of revenues from the Milwaukee Marriott 14 15 beginning in July 1991 and the Best Western North in Columbus, Ohio beginning in January 1992 which totaled $9,238,000 was offset by the reduction in revenues that resulted from property sales which amounted to $5,533,000. The following table summarizes average occupancy and room rates for properties leased by the Corporation from the Trust:
Year Ended December 31, -------------------------------------- 1992 1991 ------ ------ Average Occupancy Rate 59% 57% Average Room Rate $53.18 $51.17
Management of the Corporation believes that the increases in the average occupancy rate resulted primarily from increased business and pleasure travel throughout the United States, and that the increase in the average room rate principally reflects the addition of the Milwaukee Marriott (which hotel has a higher room rate than the Corporation's remaining mix of properties). Gaming revenues increased between 1991 and 1992 by $3,541,000, primarily as a result of increased travel to the Las Vegas area and the proximity of the King 8 to several large hotel/casinos which were under development or had been recently completed. Management fees and other income decreased by $108,000 for the year ended December 31, 1992 as compared to 1991, due primarily to reduced management fees (which fees are based on revenues) earned at the seven hotels (excluding the Milwaukee Marriott which is combined in consolidation) managed by the Corporation for entities other than the Trust. Gain on sales of assets for the years ended December 31, 1992 and 1991 ($4,000 and $1,208,000, respectively) reflect the property sales described above. Expenses of hotel operations increased to $68,620,000, or 77.3% of hotel revenues, in 1992, as compared to $65,963,000, or 77.5% of hotel revenues in 1991. Expenses of gaming operations totaled $23,699,000, or 90.6% of gaming revenues, as compared to $21,948,000, or 97.1% of gaming revenue, for the years ended December 31, 1992 and 1991, respectively. Management believes that increased gaming revenue, coupled with improved casino win percentages, has resulted in decreased gaming expenses as a percentage of gaming revenue. For information with respect to rent and interest paid by the Corporation to the Trust during the years ended December 31, 1992 and 1991, see "The Trust - Results of Operations for the Years Ended December 31, 1992 and 1991". Interest - other increased by $650,000, and depreciation and amortization increased by $744,000, for 1992 as compared to 1991, due to the July 1991 restructuring of the ownership of the Milwaukee Marriott. 15 16 Administrative and operating expenses increased to $3,827,000 in 1992 from $3,137,000 in 1991. The increase was due primarily to the payment or accrual of severance compensation for certain of the Corporation's employees as a result of the relocation of certain operations of the Corporation to Los Angeles and reductions in personnel due to the contracting out to third- party management companies of the operations of hotel properties previously operated by the Corporation. No provision for investment loss was established in 1992, as compared to a provision for losses of $713,000 (a non- cash charge to operations) in 1991; which related to the Milwaukee Marriott Hotel acquired by the Corporation in July 1991. The Corporation's net loss totaled $9,925,000, or $0.82 per share, in 1992, as compared to $11,132,000, or $0.92 per share, for 1991. 16 17 Liquidity and Capital Resources The Trust - The primary sources of liquidity for the Trust are cash generated from operations (i.e., its rents) and net proceeds from the sale of hotels. The primary demands on the Trust's capital resources are debt service payments, the funding of capital improvements to the Trust's properties and the making of additional loans and advances to the Corporation. As of December 31, 1992, an aggregate of $87,490,000 was owed by the Corporation to the Trust as accrued but unpaid rent, interest and other indebtedness (including the Milwaukee notes) of $12,667,000. As of January 1, 1993, a total of $448,000 of then accrued and unpaid rents and interest were added to the debt. During 1993 and 1994, no interest accrued or will accrue on the Corporation's debt to the Trust; beginning January 1, 1995, the outstanding principal balance of the Corporation's debt to the Trust will bear interest at an annual rate equal to the prime rate of one of the Banks from time to time plus 2%. However, there can be no assurance that the Corporation's debt to the Trust won't need to be further restructured in future years. The 1993 restructuring of the Intercompany Leases (see "The Trust - Investments - Equity Investments" included in Items 1 and 2 of this Joint Annual Report), the two-year interest moratorium on the Corporation's debt to the Trust and sales of the Trust's hotels which were managed by the Corporation, are expected to lower the rents and interest received by the Trust from the Corporation in 1994. The Trust's revenues were $20,342,000 in 1993 as compared to $26,784,000 in 1992, and due to anticipated property sales are expected to be lower in 1994 than in 1993. The Trust will seek to generate from its operations sufficient cash flow to pay the interest due on the Secured Term Loan, Revolving Line of Credit and the Trust's other mortgage debt, as well as to fund required capital improvements; however, debt principal payments are expected to be made primarily from the proceeds of hotel sales and (in the case of mortgage debt other than the Restructured Debt) from debt refinancings. (For information with respect to such mortgage debt, see Note 7 of Notes to Financial Statements included in Item 8 of this Joint Annual Report.) In addition to the $9,000,000 principal payment due on August 31, 1994 aggregate principal payments due during 1994 on the outstanding mortgage notes payable of the Trust amounted to $16,088,000 as of December 31, 1993, including three mortgage notes maturing during 1994. Management of the Trust is currently negotiating the refinance or extension of the mortgage notes due in 1994. Management believes that there will be sufficient cash available from operations and from the currently pending sales of properties to fund its operations and obligations during 1994. (See "Recent Developments - Pending Sales" included in Items 1 and 2 of this Joint Annual Report.) There can be no assurance, however, that either the Trust's operations or the Trust's sale of hotels will produce sufficient cash to make the required payments of principal and interest. (See "Recent Developments - Debt Restructuring" included in Items 1 and 2 of this Joint Annual Report.) The Corporation - The primary source of liquidity for the Corporation is cash generated from operations - i.e., from sales of rooms, food and beverages at the hotels and hotel/casinos the Corporation leases from the Trust and gaming revenues at the two Nevada properties, net of management fees with respect to the 9 hotels managed by independent management companies. The primary demands on the Corporation's capital resources are the payment of rents and interest due to the Trust and the Corporation's general and administrative 17 18 expenses. Although the two-year interest moratorium on the Corporation's debt to the Trust and the reduction in future rentals due to the Trust are expected to improve the Corporation's 1994 cash flows and income, sales of the Trust's hotels managed by the Corporation have reduced, and are expected to continue to reduce, the Corporation's revenues. The Corporation may continue to incur cash flow deficiencies and the Corporation expects to continue to request that the Trust loan the Corporation the funds required to meet those deficiencies. The debt of the Corporation due to the Trust is payable on demand. The Corporation currently has no other means of obtaining the funds to cover its cash flow deficiencies or to repay the principal amount of the Corporation's debt to the Trust. As described in Items 1 and 2 hereof under the caption "Recent Developments - Debt Restructuring", the Credit Agreement requires that the Trust and the Corporation apply on a daily basis any cash in excess of certain specified thresholds to borrowings outstanding under the Revolving Line of Credit. Amounts so paid are available for future borrowings to pay interest on the Restructured Debt, to make principal payments on the Term Loan and to pay other expenses incurred in connection with Hotel Investors' operations. As of December 31, 1993, $3,075,000 was available to the Trust under the Revolving Line of Credit. However, should Hotel Investors fail to comply with its obligations under the Credit Agreement and related documents, the Lenders will have the power to substantially restrict Hotel Investors' access to and ability to utilize its cash. The Trust intends to make during 1994, improvements to the Trust's properties that are necessary to maintain the properties in good condition or that are required by franchisors or applicable health and safety and other laws. The management of the Trust believes that the necessary funds are available and the cost of such improvements will be approximately $3,720,000 during 1994. As discussed in Items 1 and 2 of this Joint Annual Report, Hotel Investors' capital improvements are subject to the approval of the Senior Lenders. For information with respect to potential hazardous waste contamination and the presence of asbestos at certain of the Trust's hotels and the possible impact thereof on the Trust's and the Corporation's financial position, see "Other Information - Certain Environmental Matters" included in Items 1 and 2 of this Joint Annual Report. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The financial statements and supplementary data required by this Item are included in Item 14 of this Joint Annual Report. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Certain Beneficial Owners. To the knowledge of the Trust and the Corporation, no person owns beneficially 5% or more of the Paired Shares, except as follows: Amount Name and Address Beneficially Percent of Title of Class of Beneficial Owner Owned Class (1) -------------- ------------------- ----- --------- Paired Shares Leonard M. Ross 1,190,400 (2) 9.8%
18 19 1011-1/2 North Beverly Drive Beverly Hills, CA (2) RRH Capital Management, Inc. 746,350 (3) 6.2% 1270 Avenue of the Americas New York, NY 10020 (3) R.B. Haave Associates, Inc. 749,200 6.2% 270 Madison Avenue New York, NY 10016 (4) (1) Based on the number of Paired Shares outstanding on March 25, 1994. (2) Based on information contained in Amendment No. 8 to Schedule 13D dated February 22, 1991. Mr. Ross has sole voting and dispositive power with respect to all of these shares; however, 909,800 of these shares are pledged to the Pacific Bank, along with other securities, as collateral for a previously unsecured loan. (3) Based on information contained in Schedule 13G dated February 11, 1993. RRH Capital Management, Inc. has sole dispositive power with respect to all, and does not have voting power with respect to any, of these shares. (4) Based on information contained in Schedule 13G dated February 7, 1994, R.B. Haave Associates, Inc. has sole dispositive power and voting power with respect to all of these shares. Trustees and Officers of the Trust. The following table sets forth the beneficial ownership of the paired shares as of March 25, 1994 by each Trustee and each executive officer of the Trust named in the Summary Cash Compensation Table included in Item 11 hereof who owns paired shares and by all Trustees and executive officers of the Trust as a group. Except as otherwise provided below, each beneficial owner has sole voting and investment power with respect to all shares beneficially owned (other than shares acquired pursuant to the Trust's 1987 share purchase plan, as to which shares the beneficial owner has no investment power until his indebtedness to the Trust in respect of these shares is repaid.
Name of Amount Percent of Beneficial owner Beneficially Owned Class (1) ---------------- ----- ---------- Jeffrey C. Lapin 69,084 (2) (3) Michael W. Mooney 16,750 (4) (3) Sherwin L. Samuels 98,820 (5) (3) Graeme W. Henderson 51,500 (6) (3) All Trustees and officers as a group 236,154 (7) 1.9%
- - - -------------------- (1) Based on the number of paired shares outstanding on March 25, 1994. 19 20 (2) Includes 63,334 shares subject to presently exercisable options and 5,000 shares owned in a pension plan of which Mr. Lapin is sole trustee and beneficiary. (3) Less than 1%. (4) Includes 16,750 shares subject to presently exercisable options. (5) Includes 14,320 shares held in a segregated account for the benefit of Mr. Samuels by a pension plan trust; 7,500 shares acquired by Mr. Samuels pursuant to a Trust share purchase plan; and 56,000 shares subject to presently exercisable options and 1,000 shares issuable upon exercise of paired warrants issued by the Trust and the Corporation. Does not include 359 shares owned by Mr. Samuels's son (of which shares Mr. Samuels disclaims beneficial ownership). (6) Includes 300 shares owned in a Keogh plan, 5,000 shares owned in a pension plan of which Mr. Henderson is sole trustee and beneficiary and 5,000 shares acquired pursuant to a Trust share purchase plan and 16,000 shares issuable upon exercise of paired warrants issued by the Trust and the Corporation. (7) Includes 137,384 shares that may be acquired upon the exercise of presently exercisable options and 12,500 shares acquired by Trustees pursuant to a Trust share purchase plan and 17,000 shares issuable upon exercise of paired warrants issued by the Trust and the Corporation. Does not include shares owned by Mr. Samuels' son (see note (5) above). Directors and Officers of the Corporation. The following table sets forth the beneficial ownership of paired shares as of March 25, 1994 by each Director and each executive officer of the Corporation named in the Summary Cash Compensation Table included in Item 11 hereof who owns paired shares and by all Directors and executive officers of the Corporation as a group. Except as otherwise provided below, each beneficial owner has sole voting and investment power with respect to all shares beneficially owned (other than shares acquired pursuant to the Corporation's share purchase plans, as to which shares the beneficial owner has no investment power until his indebtedness to the Corporation in respect of these shares is repaid).
Name of Number of Shares Percent of Beneficial Owner Beneficially Owned Class (1) ---------------- ------------------ --------- Kevin E. Mallory 16,750 (2) (3) Bruce M. Ford 12,612 (4) (3) Earle F. Jones 6,500 (5) (3) Graeme W. Henderson 51,500 (6) (3) All Directors and officers as a group 68,440 (7) (3)
- - - ----------------------- (1) Based on the number of shares outstanding on March 25, 1994. (2) Includes 16,750 shares subject to presently exercisable options. (3) Less than 1%. 20 21 (4) Includes 9500 shares acquired pursuant to a Corporation share purchase plan and 2,422 shares issuable upon exercise of paired warrants issued by the Trust and the Corporation, 172 of which are owned by Mr. Ford's wife. (5) Includes 5,000 shares acquired pursuant to a Corporation share purchase plan and 500 shares issuable upon exercise of paired warrants issued by the Trust and the Corporation. (6) Includes 300 shares owned in a Keogh Plan, 5,000 shares owned in a pension plan of which Mr. Henderson is trustee and beneficiary and 5,000 shares acquired pursuant to a Trust share purchase plan and 16,000 shares issuable upon exercise of paired warrants issued by the Trust and the Corporation. (7) Includes 16,750 shares that may be acquired upon the exercise of presently exercisable options and 19,500 shares acquired by Directors pursuant to the Trust's and the Corporation's share purchase plans and 18,922 shares issuable upon exercise of paired warrants issued by the Trust and the Corporation. 21 22 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this amendment to be signed on its behalf by the undersigned, thereunto duly authorized. HOTEL INVESTORS TRUST HOTEL INVESTORS CORPORATION (Registrant) (Registrant) By: /s/ MICHAEL W. MOONEY By: /s/ KEVIN E. MALLORY ---------------------------- ------------------------------- Michael W. Mooney Kevin E. Mallory Chief Financial Officer Executive Vice President (Principal Executive Officer) Dated: October 26, 1994 22 23 HOTEL INVESTORS TRUST HOTEL INVESTORS CORPORATION INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES AS OF DECEMBER 31, 1993 AND 1992 AND FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1993 INDEPENDENT AUDITORS' REPORT .............................................. F-1 HOTEL INVESTORS TRUST AND HOTEL INVESTORS CORPORATION: Combined Balance Sheets ............................................ F-3 Combined Statements of Operations .................................. F-4 Combined Statements of Cash Flows .................................. F-5 Combined Statements of Shareholders' Equity ........................ F-6 HOTEL INVESTORS TRUST: Balance Sheets ..................................................... F-7 Statements of Operations ........................................... F-8 Statements of Cash Flows ........................................... F-9 Statements of Shareholders' Equity ................................. F-10 HOTEL INVESTORS CORPORATION: Balance Sheets ..................................................... F-11 Statements of Operations ........................................... F-12 Statements of Cash Flows ........................................... F-13 Statements of Shareholders' Deficit ................................ F-14 NOTES TO FINANCIAL STATEMENTS ............................................. F-15 SCHEDULES: Schedule IV - Indebtedness of and to Related Parties ............... F-39 Schedule IX - Short-term Borrowings ................................ F-41 Schedule X - Supplementary Statements of Operations Information ... F-42 Schedule XI - Real Estate and Accumulated Depreciation ............. F-43 Schedule XII- Mortgage Loans on Real Estate ........................ F-47 24 INDEPENDENT AUDITORS' REPORT To the Boards of Trustees and Directors and Shareholders of Hotel Investors Trust and Hotel Investors Corporation: We have audited the accompanying separate and combined financial statements of Hotel Investors Trust (a Maryland real estate investment trust) (the "Trust") and Hotel Investors Corporation (a Maryland corporation) and its subsidiaries (the "Corporation"), collectively the "Companies", as of December 31, 1993 and 1992, and for each of the three years in the period ended December 31, 1993, listed in the foregoing index to financial statements and financial statement schedules. Our audits also included the financial statement schedules listed in the foregoing index to financial statements and financial statement schedules. These financial statements and financial statement schedules are the responsibility of the Trust's, the Corporation's and the Companies' managements. Our responsibility is to express an opinion on the financial statements and financial statement schedules based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such separate and combined financial statements present fairly, in all material respects, the financial position of the Companies and the financial position of the Trust and the Corporation as of December 31, 1993 and 1992, and their respective results of their operations and their cash flows for each of the three years in the period ended December 31, 1993 in conformity with generally accepted accounting principles. Also, in our opinion, such financial statement schedules, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein. The accompanying financial statements and financial statement schedules have been prepared assuming the Trust, the Corporation and the Companies will continue as going concerns. As discussed in Note 2 to the financial statements, the Trust was in default at December 31, 1992 on its obligations to repay indebtedness under the Trust Line of Credit Agreement and Senior Notes Agreements. As discussed in Note 6 to the financial statements, because of the substantial operating losses and cash flow deficiencies experienced by the Corporation, which also had a deficiency in net assets, the Corporation has been unable to repay amounts due to the Trust. These conditions raise substantial doubt about the Trust's, the Corporation's and the Companies' ability to continue as going concerns. F-1 25 Managements' plans concerning these matters are described in Notes 2 and 6 to the financial statements. The financial statements and financial statement schedules do not include any adjustments that might result from the outcome of these uncertainties. We have not audited any financial statements of the Trust, the Corporation and the Companies for any period subsequent to December 31, 1993. However, as discussed in Note 13 to the financial statements, in October 1994, Starwood Capital Group, L.P. ("Starwood") entered into negotiations with Leonard M. Ross and his affliates ("Ross") who had opted out of the settlement of the Shareholder Actions to settle the threatened litigation against the Trust and the Corporation. The ultimate outcome of this matter cannot presently be determined. Accordingly, no provision for any liability that might result upon resolution of this matter has been made in the accompanying financial statements. Los Angeles, California March 25, 1994, except for Note 13, as to which the date is October 26, 1994 F-2 26 HOTEL INVESTORS TRUST AND HOTEL INVESTORS CORPORATION COMBINED BALANCE SHEETS
December 31, December 31, 1993 1992 ------------- ------------- ASSETS Hotel assets held for sale - net .................... $ 16,631,000 $ 26,000,000 Hotel assets - net .................................. 150,618,000 151,462,000 ------------- ------------- 167,249,000 177,462,000 Mortgage notes receivable-net ....................... 11,642,000 10,010,000 Investment in joint venture hotel properties ........ 281,000 281,000 ------------- ------------- Total real estate investments ................. 179,172,000 187,753,000 Cash and cash equivalents ........................... 5,652,000 10,517,000 Accounts receivable ................................. 4,360,000 4,464,000 Notes receivable - net .............................. 1,717,000 1,772,000 Inventories, prepaid expenses and other assets ...... 4,451,000 6,439,000 ------------- -------------- $ 195,352,000 $ 210,945,000 ============= ============= LIABILITIES AND SHAREHOLDERS' EQUITY LIABILITIES Secured notes payable and revolving line of credit .. $ 128,802,000 $ 128,223,000 Mortgage and other notes payable .................... 42,084,000 42,074,000 Accounts payable and other liabilities .............. 11,140,000 20,297,000 ------------- ------------- 182,026,000 190,594,000 ------------- ------------- Commitments and contingencies SHAREHOLDERS' EQUITY Trust shares of beneficial interest, $1.00 par value; authorized 30,000,000 shares; outstanding 12,132,948 shares ............................... 12,133,000 12,133,000 Corporation common stock, $0.10 par value; authorized 30,000,000 shares; outstanding 12,132,948 shares ................... 1,213,000 1,213,000 Additional paid-in capital .......................... 210,497,000 210,673,000 Share purchase notes ................................ (291,000) (474,000) Accumulated deficit ................................. (210,226,000) (203,194,000) ------------- ------------- 13,326,000 20,351,000 ------------- ------------- $ 195,352,000 $ 210,945,000 ============= =============
See accompanying notes to financial statements. F-3 27 HOTEL INVESTORS TRUST AND HOTEL INVESTORS CORPORATION COMBINED STATEMENTS OF OPERATIONS
Years Ended December 31, -------------------------------------------- 1993 1992 1991 ------------ ------------ ------------ REVENUE Hotel ........................................... $ 86,903,000 $ 88,812,000 $ 85,156,000 Gaming .......................................... 27,505,000 26,150,000 22,609,000 Interest from mortgage and other notes .......... 1,412,000 1,348,000 1,761,000 Management fees and other income ................ 475,000 1,186,000 1,376,000 Rents from leased hotel properties and income from joint ventures ............... 839,000 947,000 936,000 Gain (loss) on sales of hotel assets ............ 21,000 (787,000) 1,598,000 ------------ ------------ ------------ 117,155,000 117,656,000 113,436,000 ------------ ------------ ------------ EXPENSES Hotel operations ................................ 68,132,000 68,620,000 65,963,000 Gaming operations ............................... 24,055,000 23,699,000 21,948,000 Interest ........................................ 15,187,000 14,208,000 16,458,000 Depreciation and amortization ................... 9,232,000 10,196,000 11,688,000 Administrative and operating .................... 5,212,000 6,365,000 6,086,000 Loan restructuring costs ........................ 10,892,000 3,797,000 Provision for losses ............................ 2,369,000 3,419,000 9,580,000 ------------ ------------ ------------ 124,187,000 137,399,000 135,520,000 ------------ ------------ ------------ NET LOSS $ (7,032,000) $(19,743,000) $(22,084,000) ============ ============ ============ NET LOSS PER PAIRED SHARE $ (0.58) $ (1.63) $ (1.82)
See accompanying notes to financial statements. F-4 28 HOTEL INVESTORS TRUST AND HOTEL INVESTORS CORPORATION COMBINED STATEMENTS OF CASH FLOWS
Years Ended December 31, --------------------------------------------- 1993 1992 1991 ----------- ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES Net loss ........................................... $(7,032,000) $(19,743,000) $(22,084,000) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization .................... 9,232,000 10,196,000 11,688,000 Deferred interest ................................ 3,287,000 (Gain) loss on sales of hotel assets 787,000 (1,598,000) Provision for investment losses .................. 2,369,000 3,419,000 9,580,000 Changes in assets and liabilities: Accounts receivable, inventories and prepaid expenses ........................... 2,118,000 14,000 (1,131,000) Accounts payable and other liabilities ........... (4,421,000) 10,017,000 (2,613,000) ----------- ------------ ------------ Net cash provided by (used in) operating activities ....................... 5,532,000 4,690,000 (6,158,000) ----------- ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES Additions to hotel assets .......................... (6,577,000) (2,990,000) (4,551,000) Net proceeds from sales of assets .................. 6,130,000 488,000 15,200,000 Increase in notes receivable ....................... (1,985,000) Principal received on notes receivable ............. 409,000 1,006,000 1,110,000 Other intangible assets ............................ (47,000) (18,000) 244,000 Acquisition of minority interest/hotels ............ (1,575,000) 156,000 ----------- ------------ ------------ Net cash provided by (used in) investing activities ....................... (3,645,000) (1,514,000) 12,159,000 ----------- ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES Principal payments on mortgage and other notes payable .............................. (1,666,000) (1,146,000) (1,088,000) Borrowings under mortgage and other notes .......... 632,000 761,000 Principal payments on secured notes payable and revolving line of credit ......................... (5,695,000) (6,727,000) Payments to minority shareholders .................. (28,000) (111,000) (125,000) Principal received on share purchase notes ......... 5,000 2,000 40,000 ----------- ------------ ------------ Net cash provided by (used in) financing activities ................................. (6,752,000) (1,255,000) (7,139,000) INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ............................. (4,865,000) 1,921,000 (1,138,000) CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR ............................. 10,517,000 8,596,000 9,734,000 CASH AND CASH EQUIVALENTS AT END OF YEAR ................................... $ 5,652,000 $ 10,517,000 $ 8,596,000 =========== ============ ============
See accompanying notes to financial statements. F-5 29 HOTEL INVESTORS TRUST AND HOTEL INVESTORS CORPORATION COMBINED STATEMENTS OF SHAREHOLDERS' EQUITY
Trust Shares of Corporation Additional Beneficial Common Paid - in Interest Stock Capital ------------ ----------- ------------ Balance January 1, 1991 .................... $12,133,000 $1,213,000 $210,673,000 Principal payments and reductions of share purchase notes ............. Net loss ............................... ----------- ---------- ------------ Balance December 31, 1991 .................. 12,133,000 1,213,000 210,673,000 Principal payments and reductions of share purchase notes ............. Net loss .............................. ----------- ---------- ----------- Balance December 31, 1992 .................. 12,133,000 1,213,000 210,673,000 Principal payments and reductions of share purchase notes .............. (176,000) Net loss ............................... ----------- ---------- ----------- Balance December 31, 1993 .................. $12,133,000 $1,213,000 $210,497,000 =========== ========== ============
Share Total Purchase Accumulated Shareholders' Notes Deficit Equity --------- ------------- ------------- Balance January 1, 1991 .................... $(548,000) $(161,367,000) $ 62,104,000 Principal payments and reductions of share purchase notes ............. 63,000 63,000 Net loss ............................... (22,084,000) (22,084,000) --------- ------------- ------------ Balance December 31, 1991 .................. (485,000) (183,451,000) 40,083,000 Principal payments and reductions of share purchase notes ............. 11,000 11,000 Net loss .............................. (19,743,000) (19,743,000) --------- ------------- ------------ Balance December 31, 1992 .................. (474,000) (203,194,000) 20,351,000 Principal payments and reductions of share purchase notes .............. 183,000 7,000 Net loss ............................... (7,032,000) (7,032,000) --------- ------------- ------------ Balance December 31, 1993 .................. $(291,000) $(210,226,000) $ 13,326,000 ========= ============= ============
See accompanying notes to financial statements. F-6 30 HOTEL INVESTORS TRUST BALANCE SHEETS
December 31, December 31, 1993 1992 ------------- ------------- ASSETS Hotel assets held for sale - net .................... $ 15,699,000 $ 24,121,000 Hotel assets - net .................................. 114,219,000 116,897,000 ------------- ------------- 129,918,000 141,018,000 Mortgage notes receivable-net ....................... 11,642,000 10,010,000 Investment in joint venture hotel properties ........ 276,000 276,000 Total real estate investments ................. 141,836,000 151,304,000 Cash and cash equivalents ........................... 918,000 2,615,000 Accounts receivable ................................ 1,011,000 1,492,000 Rent and interest receivable - Corporation .......... 448,000 Notes receivable - Corporation ...................... 87,486,000 87,490,000 Notes receivable - net .............................. 1,025,000 1,025,000 Prepaid expenses and other assets ................... 569,000 1,166,000 ------------- ------------- $ 232,845,000 $ 245,540,000 ============= ============= LIABILITIES AND SHAREHOLDERS' EQUITY LIABILITIES Secured notes payable and revolving line of credit ... $ 128,802,000 $ 128,223,000 Mortgage and other notes payable ..................... 27,724,000 29,318,000 Accounts payable and other liabilities ............... 4,114,000 11,628,000 ------------- ------------- 160,640,000 169,169,000 ------------- ------------- Commitments and contingencies SHAREHOLDERS' EQUITY Trust shares of beneficial interest, $1.00 par value; authorized 30,000,000 shares; outstanding 12,132,948 shares ................................. 12,133,000 12,133,000 Additional paid-in capital ........................... 204,640,000 204,816,000 Share purchase notes ................................. (291,000) (190,000) Accumulated deficit .................................. (144,277,000) (140,388,000) ------------- ------------- 72,205,000 76,371,000 ------------- ------------- $ 232,845,000 $ 245,540,000 ============= =============
See accompanying notes to financial statements. F-7 31 HOTEL INVESTORS TRUST STATEMENTS OF OPERATIONS
Years Ended December 31, ---------------------------------------------- 1993 1992 1991 ----------- ----------- ------------ REVENUE Rents from Corporation ...................... $16,481,000 $21,177,000 $ 22,093,000 Interest from Corporation ................... 1,534,000 4,123,000 4,382,000 Interest from mortgage and other notes ...... 1,288,000 1,101,000 1,440,000 Rents from other leased hotel properties and income from joint ventures ........... 839,000 947,000 936,000 Other income ................................ 253,000 227,000 309,000 Gain (loss) on sales of hotel assets ........ (53,000) (791,000) 390,000 20,342,000 26,784,000 29,550,000 ----------- ----------- ------------ EXPENSES Interest .................................... 14,020,000 12,959,000 15,859,000 Depreciation and amortization ............... 5,630,000 6,794,000 9,030,000 Administrative and operating ................ 2,212,000 2,538,000 2,949,000 Loan restructuring costs .................... 10,892,000 3,797,000 Provision for losses ........................ 2,369,000 3,419,000 8,867,000 24,231,000 36,602,000 40,502,000 ----------- ----------- ------------ NET LOSS $(3,889,000) $(9,818,000) $(10,952,000) =========== =========== ============ NET LOSS PER SHARE $ (0.32) $ (0.81) $ (0.90)
See accompanying notes to financial statements. F-8 32 HOTEL INVESTORS TRUST STATEMENTS OF CASH FLOWS
Years Ended December 31, ----------------------------------------------- 1993 1992 1991 ----------- ----------- ------------ CASH FLOWS FROM OPERATING ACTIVITIES Net loss ......................................... $(3,889,000) $(9,818,000) $(10,952,000) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization .................. 5,630,000 6,794,000 9,030,000 Deferred interest ............................... 2,243,000 (Gain)/Loss on sales of hotel assets ........... 53,000 791,000 (390,000) Provision for losses ........................... 2,369,000 3,419,000 8,867,000 Changes in operating assets and liabilities: Rent and interest receivable - Corporation ..... (1,519,000) (8,238,000) (13,165,000) Accounts receivable and prepaid expenses ....... 1,037,000 115,000 (659,000) Accounts payable and other liabilities ......... (2,788,000) 9,710,000 (1,543,000) ----------- ----------- ------------ Net cash provided by (used in) operating activities ..................... 3,136,000 2,773,000 (8,812,000) ----------- ----------- ------------ CASH FLOWS FROM INVESTING ACTIVITIES Additions to hotel assets ....................... (1,372,000) (1,700,000) (3,217,000) Net proceeds from sales of assets ................ 5,360,000 189,000 13,596,000 Increase in mortgage notes receivable ............ (1,985,000) Principal received on mortgage and other notes receivable ..................... 353,000 957,000 1,064,000 Other intangible assets ......................... (18,000) 244,000 Net changes in notes receivable - Corporation .... 1,693,000 411,000 1,202,000 Acquisition of minority interest ................ (1,575,000) ----------- ----------- ------------ Net cash provided by (used in) investing activities ..................... 2,474,000 (161,000) 12,889,000 ----------- ----------- ------------ CASH FLOWS FROM FINANCING ACTIVITIES Principal payments on mortgage and other notes payable ........................... (1,594,000) (754,000) (708,000) Principal payments on secured notes payable and revolving line of credit ....................... (5,695,000) (6,727,000) Payments to minority shareholders ................ (18,000) (97,000) (112,000) Principal received on share purchase notes 1,000 40,000 ----------- ----------- ------------ Net cash provided by (used in) financing activities ..................... (7,307,000) (850,000) (7,507,000) ----------- ----------- ------------ INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS .......................... (1,697,000) 1,762,000 (3,430,000) CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR ........................... 2,615,000 853,000 4,283,000 ----------- ----------- ------------ CASH AND CASH EQUIVALENTS AT END OF YEAR ................................. $ 918,000 $ 2,615,000 $ 853,000 =========== =========== ============
See accompanying notes to financial statements. F-9 33 HOTEL INVESTORS TRUST STATEMENTS OF SHAREHOLDERS' EQUITY
Shares of Additional Share Beneficial Paid - in Purchase Interest Capital Notes ----------- ------------ ----------- Balance January 1, 1991 . . . . . . . . . $12,133,000 $204,816,000 $(244,000) Principal payments and reductions of share purchase notes . . . . . . 53,000 Net loss . . . . . . . . . . . . . . . . ----------- ------------ --------- Balance December 31, 1991 . . . . . . . . 12,133,000 204,816,000 (191,000) Principal payments and reductions of share purchase notes . . . . . . 1,000 Net loss . . . . . . . . . . . . . . . . ----------- ------------ --------- Balance December 31, 1992 . . . . . . . . 12,133,000 204,816,000 (190,000) Principal payments, reductions and transfer of share purchase notes from the Corporation-net . . . . . . (176,000) (101,000) Net loss . . . . . . . . . . . . . . . . ----------- ------------ --------- Balance December 31, 1993 . . . . . . . . $12,133,000 $204,640,000 $(291,000) =========== ============ =========
Total Accumulated Shareholders' Deficit Equity ------------- ------------ Balance January 1, 1991 . . . . . . . . . $(119,618,000) $ 97,087,000 Principal payments and reductions of share purchase notes . . . . . . 53,000 Net loss . . . . . . . . . . . . . . . . (10,952,000) (10,952,000) ------------- ------------ Balance December 31, 1991 . . . . . . . . (130,570,000) 86,188,000 Principal payments and reductions of share purchase notes . . . . . . 1,000 Net loss . . . . . . . . . . . . . . . . (9,818,000) (9,818,000) ------------- ------------ Balance December 31, 1992 . . . . . . . . (140,388,000) 76,371,000 Principal payments, reductions and transfer of share purchase notes from the Corporation-net . . . . . . (277,000) Net loss . . . . . . . . . . . . . . . . (3,889,000) (3,889,000) ------------- ------------ Balance December 31, 1993 . . . . . . . . $(144,277,000) $ 72,205,000 ============= ============
See accompanying notes to financial statements. F-10 34 HOTEL INVESTORS CORPORATION BALANCE SHEETS
December 31, December 31, 1993 1992 ------------ ------------ ASSETS Hotel assets held for sale - net . . . . . . . . . $ 932,000 $ 1,878,000 Hotel assets - net . . . . . . . . . . . . . . . . 36,399,000 34,566,000 ------------ ------------ 37,331,000 36,444,000 Investment in joint venture hotel properties . . . 5,000 5,000 ------------ ------------ Total real estate investments . . . . . . . 37,336,000 36,449,000 Cash and cash equivalents . . . . . . . . . . . . 4,734,000 7,902,000 Accounts receivable . . . . . . . . . . . . . . . 3,349,000 2,972,000 Notes receivable . . . . . . . . . . . . . . . . . 692,000 1,015,000 Inventories, prepaid expenses and other assets . . 3,882,000 5,273,000 ------------ ------------ $ 49,993,000 $ 53,611,000 ============ ============ LIABILITIES AND SHAREHOLDERS' DEFICIT LIABILITIES Mortgage and other notes payable . . . . . . . . . $ 14,360,000 $ 12,756,000 Notes payable - Trust . . . . . . . . . . . . . . 87,486,000 87,490,000 Rent and interest payable - Trust . . . . . . . . 448,000 Accounts payable and other liabilities . . . . . . 7,026,000 8,669,000 ------------ ------------ 108,872,000 109,363,000 ------------ ------------ Commitments and contingencies SHAREHOLDERS' DEFICIT Corporation common stock, $0.10 par value; authorized 30,000,000 shares; outstanding 12,132,948 shares . . . . . . . . . 1,213,000 1,213,000 Additional paid-in capital . . . . . . . . . . . . 5,857,000 5,857,000 Share purchase notes . . . . . . . . . . . . . . . (16,000) Accumulated deficit . . . . . . . . . . . . . . . (65,949,000) (62,806,000) ------------ ------------ (58,879,000) (55,752,000) ------------ ------------ $ 49,993,000 $ 53,611,000 ============ ============
See accompanying notes to financial statements. F-11 35 HOTEL INVESTORS CORPORATION STATEMENTS OF OPERATIONS
Years Ended December 31, ------------------------------------------------ 1993 1992 1991 ------------ ------------ ------------ REVENUE Hotel . . . . . . . . . . . . . . . . . . $ 86,903,000 $ 88,812,000 $ 85,156,000 Gaming . . . . . . . . . . . . . . . . . . 27,505,000 26,150,000 22,609,000 Interest from notes receivable . . . . . . 124,000 247,000 321,000 Management fees and other income . . . . . 222,000 959,000 1,067,000 Gain (loss) on sales of hotel assets . . . 74,000 4,000 1,208,000 ------------ ------------ ------------ 114,828,000 116,172,000 110,361,000 ------------ ------------ ------------ EXPENSES Hotel operations . . . . . . . . . . . . . 68,132,000 68,620,000 65,963,000 Gaming operations . . . . . . . . . . . . 24,055,000 23,699,000 21,948,000 Rent - Trust . . . . . . . . . . . . . . . 16,481,000 21,177,000 22,093,000 Interest - Trust . . . . . . . . . . . . . 1,534,000 4,123,000 4,382,000 Interest - other . . . . . . . . . . . . . 1,167,000 1,249,000 599,000 Depreciation and amortization . . . . . . 3,602,000 3,402,000 2,658,000 Administrative and operating . . . . . . . 3,000,000 3,827,000 3,137,000 Provision for losses . . . . . . . . . . . 713,000 ------------ ------------ ------------ 117,971,000 126,097,000 121,493,000 ------------ ------------ ------------ NET LOSS $ (3,143,000) $ (9,925,000) $(11,132,000) ============ ============ ============ NET LOSS PER SHARE $ (0.26) $ (0.82) $ (0.92)
See accompanying notes to financial statements. F-12 36 HOTEL INVESTORS CORPORATION STATEMENTS OF CASH FLOWS
Years Ended December 31, ------------------------------------------------ 1993 1992 1991 ----------- ----------- ------------ CASH FLOWS FROM OPERATING ACTIVITIES Net loss . . . . . . . . . . . . . . . . . . . . . . $(3,143,000) $(9,925,000) $(11,132,000) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization . . . . . . . . . . 3,602,000 3,402,000 2,658,000 Deferred interest . . . . . . . . . . . . . . . . 1,044,000 Gain on sales of hotel assets . . . . . . . . . . (74,000) (4,000) (1,208,000) Provision for losses . . . . . . . . . . . . . . . 713,000 Changes in operating assets and liabilities: Accounts receivable, inventories and prepaid expenses . . . . . . . . . . . . . . 1,081,000 (101,000) (472,000) Rent and interest payable - Trust . . . . . . . . 1,519,000 8,238,000 13,165,000 Accounts payable and other liabilities . . . . . . (1,633,000) 307,000 (1,070,000) ----------- ----------- ------------ Net cash provided by (used in) operating activities . . . . . . . . . . . . 2,396,000 1,917,000 2,654,000 ----------- ----------- ------------ CASH FLOWS FROM INVESTING ACTIVITIES Additions to hotel assets . . . . . . . . . . . . . (5,205,000) (1,290,000) (1,334,000) Net proceeds from sales of hotel assets . . . . . . 770,000 299,000 1,604,000 Increase in other assets . . . . . . . . . . . . . . (47,000) Principal received on notes receivable . . . . . . . 56,000 49,000 46,000 Other intangible assets . . . . . . . . . . . . . . Acquisition of hotels - net of cash . . . . . . . . 156,000 ----------- ----------- ------------ Net cash provided by (used in) investing activities . . . . . . . . . . . . (4,426,000) (942,000) 472,000 ----------- ----------- ------------ CASH FLOWS FROM FINANCING ACTIVITIES Net change in notes payable - Trust . . . . . . . . (1,693,000) (411,000) (1,202,000) Principal payments on mortgage and other notes payable . . . . . . . . . . . . . . . (72,000) (392,000) (380,000) Borrowings under mortgage and other notes . . . . . 632,000 0 761,000 Payments to minority shareholders . . . . . . . . . (10,000) (14,000) (13,000) Principal received on share purchase notes . . . . . 5,000 1,000 0 ----------- ----------- ------------ Net cash provided by (used in) financing activities . . . . . . . . . . . (1,138,000) (816,000) (834,000) ----------- ----------- ------------ INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS . . . . . . . . . . . . . . . (3,168,000) 159,000 2,292,000 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR . . . . . . . . . . . . . . . 7,902,000 7,743,000 5,451,000 ----------- ----------- ------------ CASH AND CASH EQUIVALENTS AT END OF YEAR . . . . . . . . . . . . . . . . . . $ 4,734,000 $ 7,902,000 $ 7,743,000 =========== =========== ============
See accompanying notes to financial statements. F-13 37 HOTEL INVESTORS CORPORATION STATEMENTS OF SHAREHOLDERS' DEFICIT
Additional Share Common Paid - in Purchase Stock Capital Notes ---------- ---------- -------- Balance January 1, 1991 . . . . . . . . . . $1,213,000 $5,857,000 $(17,000) Net loss . . . . . . . . . . . . . . . ---------- ---------- -------- Balance December 31, 1991 1,213,000 5,857,000 (17,000) Principal payments and reductions of share purchase notes . . . . . . 1,000 Net loss . . . . . . . . . . . . . . . ---------- ---------- -------- Balance December 31, 1992 . . . . . . . . 1,213,000 5,857,000 (16,000) Principal payments, reductions and transfer of share purchase notes to the Trust . . . . . . . . . . . . 16,000 Net loss . . . . . . . . . . . . . . . ---------- ---------- -------- Balance December 31, 1993 . . . . . . . . $1,213,000 $5,857,000 $ 0 ========== ========== ========
Total Accumulated Shareholders' Deficit Deficit ------------- ------------- Balance January 1, 1991 . . . . . . . . . . $(41,749,000) $(34,696,000) Net loss . . . . . . . . . . . . . . . (11,132,000) (11,132,000) ------------ ------------ Balance December 31, 1991 (52,881,000) (45,828,000) Principal payments and reductions of share purchase notes . . . . . . 1,000 Net loss . . . . . . . . . . . . . . . (9,925,000) (9,925,000) ------------ ------------ Balance December 31, 1992 . . . . . . . . (62,806,000) (55,752,000) Principal payments, reductions and transfer of share purchase notes to the Trust . . . . . . . . . . . . 16,000 Net loss . . . . . . . . . . . . . . . (3,143,000) (3,143,000) ------------ ------------ Balance December 31, 1993 . . . . . . . . $(65,949,000) $(58,879,000) ============ ============
See accompanying notes to financial statements. F-14 38 HOTEL INVESTORS TRUST AND HOTEL INVESTORS CORPORATION NOTES TO FINANCIAL STATEMENTS 1. Organization and Summary of Significant Accounting Policies. General The accompanying financial statements include the accounts of Hotel Investors Trust (the "Trust") and Hotel Investors Corporation and its subsidiaries (the "Corporation"). The Trust was formed as a real estate investment trust under the Internal Revenue Code ("REIT") in 1969. In 1980, the Trust formed the Corporation and made a distribution to the Trust's shareholders of one share of common stock of the Corporation for each share of beneficial interest of the Trust. The shares of the Trust and the shares of the Corporation are paired on a one-for-one basis, and can only be transferred in units ("Paired Shares") consisting of the same number of shares of the Trust and of the Corporation. The combined financial statements include the accounts of the Trust and the Corporation (the "Companies"). All material intercompany balances and transactions have been eliminated in the combined and separate consolidated financial statements. The intercompany balances and transactions which have been eliminated in arriving at the combined balance sheets and combined statements of operations include the elimination of the rent and interest receivable and notes receivable from the Corporation recorded on the Trust's balance sheets, and the related rent and interest payable and notes payable to the Trust recorded on the Corporation's balance sheets. Rent and interest income recorded on the Trust's statements of operations are eliminated against the related rent and interest expense on the Corporation's statements of operations. The Companies own and operate hotels located throughout the United States and two hotel/casinos in Las Vegas. The hotels range in size from 90 to 445 rooms and offer services to both business and transient travelers. Basis of presentation The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. As discussed in Note 2 the Trust was in default at December 31, 1992 on its obligations to repay indebtedness under the Trust Line of Credit Agreement and Senior Notes Agreements. Effective January 28, 1993, the Trust entered into a Credit Agreement with its lenders to restructure such indebtedness. The agreement, among other things, required the Trust to acquire all of the assets of the Trust's subsidiary and to comply with specific financial covenants, operating restrictions and reporting requirements. The Trust's ability to comply with the requirements of the Credit Agreement, for which the inability to comply therewith would result in a default under the Credit Agreement, cannot presently be determined. As discussed in Note 6 to the financial statements, because of the substantial operating losses and cash flow deficiencies experienced by the Corporation, which also has a deficiency in net assets, the ultimate recovery of all amounts due to the Trust from the Corporation is highly uncertain. These conditions raise substantial doubt about the Companies' ability to continue as going concerns. Management's plans regarding the ability to continue as going concerns are discussed in Notes 2 and 6 (see also Note 13 for Subsequent Events). Management believes that these plans will permit the Trust, the Corporation and the Companies to generate sufficient cash flow to support their operations through December 31, 1994. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Trust, the Corporation and the Companies be unable to continue as going concerns. The Trust, the Corporation and the Companies' F-15 39 continuation as going concerns is dependent upon their ability to comply with the requirements of the Credit Agreement and to generate sufficient cash flow to meet their obligations on a timely basis. Hotel assets Hotel assets are stated at cost and are depreciated using straight-line and declining-balance methods over estimated useful lives of five to forty years for buildings and improvements and three to twelve years for furniture, fixtures and equipment. Amounts allocated to leasehold interests are amortized using the straight-line method over lease terms of ten to forty years. In connection with the debt restructuring (See Note 2), the Trust and the Corporation intend to sell hotel assets at sale prices which the managements of the Trust and the Corporation believe reflect the fair value of the hotels. When it is the opinion of management that the fair value of a hotel which has been identified for sale is less than the net book value of the hotel, a reserve for losses is established. Fair value is determined based upon discounted cash flow of the properties at rates (11.0% to 14.5%) deemed reasonable for the type of property and prevailing market conditions, appraisals and, if appropriate, current estimated net sales proceeds from pending offers. A gain or loss is recorded to the extent the amounts ultimately received differ from the adjusted book values of the hotel assets. Gains on sales of hotel assets are recognized at the time the hotel assets are sold, provided there is reasonable assurance of the collectability of the sales price, and any future activities to be performed by the Companies relating to the hotel assets sold are insignificant. Losses on sales of hotel assets are recognized at the time the hotel assets are sold The Trust and the Corporation estimate the fair values of each of their hotel assets and compare these values to the net book values of the hotel assets. For hotel assets not held for sale, the undiscounted future cash flows of the assets (generally over a five- year period), on a hotel-by-hotel basis, are compared to the net book values of the assets at least on an annual basis. If the undiscounted future cash flows are less than the net book value of the assets, the excess of the net book values over the estimated fair values is charged to current earnings. A summary of hotel assets at December 31, 1993 and 1992 is as follows (in thousands):
Trust Corporation -------------------------- --------------------------- 1993 1992 1993 1992 -------- -------- -------- -------- Land and leasehold interests in land . . . $ 47,204 $ 46,218 $ 15,378 $ 15,378 Buildings and improvements . . . . . . 148,460 166,537 22,545 19,220 Furniture, fixtures and equipment . . . . . . . 28,506 30,685 16,867 17,150 Accumulated depreciation and amortization . . . . (51,487) (49,483) (14,828) (12,673) Reserve for losses . . . (42,765) (52,939) (2,631) (2,631) -------- -------- -------- -------- Hotel assets - net . . $129,918 $141,018 $ 37,331 $ 36,444 ======== ======== ======== ========
Mortgage notes receivable If a loan becomes delinquent or upon the occurrence of other events it becomes known that the collectability of a specific loan is uncertain, interest income is no longer accrued and an allowance for loss is established based upon an analysis of the net realizable value of the underlying property collateralizing the loan. F-16 40 Provision for losses Provision for losses for the years ended December 31, 1993, 1992 and 1991 are as follows:
Trust 1993 1992 1991 --------------------------------------- ---------- ---------- ---------- Hotel Assets $2,369,000 $3,196,000 $7,876,000 Mortgage Notes Receivable 223,000 991,000 ---------- ---------- ---------- $2,369,000 $3,419,000 $8,867,000 ========== ========== ========== Corporation 1993 1992 1991 --------------------------------------- ---------- ---------- ---------- Hotel Assets $ 713,000 ========== ========== ==========
Statements of cash flows Cash and cash equivalents are defined as cash on hand and in banks plus all short-term investments with a maturity, at the date of purchase, of three months or less. Interest paid in cash by the Trust in the years ended December 31, 1993, 1992, and 1991 was $13,205,000, $12,992,000 and $17,653,000, respectively. Interest paid in cash by the Corporation in the years ended December 31, 1993, 1992, and 1991 was $140,000, $1,536,000 and $1,295,000, respectively. The Corporation deferred interest of $1,519,000 and $1,667,000 on its intercompany debt with the Trust in the years ended December 31, 1993 and 1992, respectively. In July, 1991, the Corporation, as a general partner of a limited partnership, became the majority owner of the Milwaukee Marriott Hotel (See Note 5). In conjunction with the acquisition, liabilities were assumed as follows: Fair value of assets acquired $23,872,000 Cash paid for partnership interest (51,000) ----------- Liabilities assumed $23,821,000 ===========
In December 1993, the Corporation transferred $278,000 of Share Purchase loans and reduced Notes Payable - Trust. During 1993, $4,032,000 of accrued loan restructuring costs (included in accounts payable and other liabilities at December 31, 1992) was added to the loan balance of the secured notes payable and revolving line of credit. Inventories Inventories are stated at the lower of cost or market with cost determined on a first-in, first-out basis. Gaming revenue Gaming revenue relates to the two hotel/casinos and includes the net wins from gaming activities, as well as room, food, beverage and other revenues, net of promotional allowances. Income taxes F-17 41 The Trust and the Corporation adopted Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes", effective January 1, 1993. This Statement supersedes SFAS No. 96, "Accounting for Income Taxes", which the Trust and the Corporation did not adopt and also supersedes Accounting Principles Board Opinion No. 11 which the Trust and the Corporation had previously applied. The effects of adopting SFAS No. 109 and related disclosures are described below. The adoption of SFAS No. 109 did not have a material effect on the financial statements of the Trust or the Corporation. Trust: No provision for federal income taxes has been made for the Trust since, in the opinion of management, the Trust qualifies as a REIT under sections 856 through 860 of the Internal Revenue Code (see Note 13). Temporary differences in significant assets and liabilities for financial and tax reporting purposes, include valuation allowances, loan restructuring costs and depreciation. The tax basis of the Trust's hotel assets as of December 31, 1993 was $145,943,000. As of December 31, 1993, the Trust had a net operating loss carryforward for federal income tax purposes of approximately $26,650,000 which expires in various years beginning in 2006. Corporation: Components of accumulated deferred income taxes as of December 31, 1993 are as follows: Deferred tax assets: Operating loss carryforwards $ 19,740,000 Losses from investments in partnerships 1,659,000 Property, equipment and other 1,224,000 Tax credit carryforwards 162,000 ------------ 22,785,000 Valuation allowance (22,785,000) ------------ Net deferred tax $ 0 ============
A valuation allowance is recorded if based on the weight of available evidence, it is more likely than not that some portion or all of the deferred tax asset will not be realized. As of December 31, 1993, the Corporation had net operating loss carryforwards for federal income tax purposes of approximately $56,400,000 which expire in various years beginning in 1997. The Corporation also has tax credit carryforwards of approximately $162,000 as of December 31, 1993, which expire in various years beginning in 1996. Loan restructuring costs Management of the Trust has concluded that the debt restructuring discussed in Note 2 represented a "troubled debt restructuring" as defined under generally accepted accounting principles, and accordingly, all restructuring costs have been expensed as incurred. The Trust expensed loan restructuring costs of $10,892,000 and $3,797,000 in the years ended December 31, 1992 and 1991, respectively. As a result of the execution of the definitive agreement for debt restructuring in January, 1993, the Trust accrued as of December 31, 1992, $8,713,000 for known future identifiable costs connected with the restructuring. In February and March 1993, upon execution of the definitive debt restructuring agreement, $700,000 was paid by the Trust to the Institutional Lenders and $4,032,000 was added to the loan balance under the terms of the Credit Agreement for restructuring costs due the Institutional Lenders for legal and other experts, which was accrued as of December 31, 1992. In addition, previously accrued restructuring costs of $2,662,000 were paid during the year ended December 31, 1993. Net loss per share F-18 42 Net loss per share is based on the weighted average number of common and common equivalent shares outstanding during the year which is on a Paired Share basis for purposes of the combined financial statements. Outstanding options and warrants are included as common equivalent shares using the treasury stock method when the effect is dilutive. The weighted average number of shares and Paired Shares used in determining net loss per share and per Paired Share was 12,132,948 for the years ended December 31, 1993, 1992 and 1991. Fair value of financial instruments The following disclosure of estimated fair value was determined by available market information and appropriate valuation methodologies. However, considerable judgment is necessary to interpret market data and develop the related estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts that could be realized upon disposition of the financial instruments. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts. Cash and cash equivalents, accounts receivable and accounts payable and other liabilities are carried at amounts which reasonably approximate their fair value. The carrying value of fixed rate mortgage notes receivable approximate their fair value as their interest rates approximate rates available for similar transactions at December 31, 1993. The carrying value of the secured notes payable and revolving line of credit approximate fair value as the related interest rates are variable. Fixed rate notes payable with carrying values of $27,724,000 and $14,360,000 for the Trust and Corporation at December 31, 1993 have a fair value of $28,507,000 and $13,110,000 as estimated based on debt with similar terms and maturities. Reclassifications Certain reclassifications have been made to the 1992 and 1991 financial statements to conform with the 1993 financial statement presentation. 2. Senior Notes Payable and Revolving Line of Credit and Debt Restructuring. As of March 31, 1991, the Trust was in default under the Trust Line of Credit and the Senior Note Agreements due to the Trust's failure to comply with certain financial covenants and to collect certain rents from the Corporation. As a result of such defaults, upon the April 30, 1991 expiration of the revolving line of credit provided by the Trust Line of Credit, the five-year secured term loan originally contemplated by the Trust Line of Credit was not made available to the Trust, and the entire amount of borrowings then outstanding under the Trust Line of Credit were deemed due and payable. On May 6, 1991, the Insurance Companies notified the Trust that as a result of the above-described defaults, all amounts due under the Senior Notes also were immediately due and payable. In response to the foregoing events, the Trust announced that it did not have sufficient funds to repay the approximately $135,000,000 then outstanding under the Trust Line of Credit and the Senior Notes and that as of April 30, 1991, the Trust was suspending the payment of interest on such borrowings and certain related fees pending an agreement with the Institutional Lenders for a debt restructuring. Debt Restructuring - Effective January 28, 1993, the Trust executed a definitive credit agreement (as subsequently amended, the "Credit Agreement") that restructured the Trust's then outstanding borrowings from two banks (the "Banks") and three insurance companies (together with the Banks, the "Institutional Lenders") as a $12,500,000 revolving line of credit with one of the Banks (the "Revolving Line of Credit") and a $115,723,000 term loan (the "Term Loan", and together with the Revolving Line of Credit, the "Restructured Debt"). F-19 43 The terms of the Credit Agreement require that the debt restructuring take place in several phases. At the first closing (the "First Closing"), effective January 28, 1993, the maturity date of the Restructured Debt was extended until March 29, 1993, and the Institutional Lenders were granted or assigned for security direct and indirect liens on and security interests in substantially all of the assets of the Trust and the Corporation (other than the assets held by United States Equity & Mortgage Trust, the Trust's 95%-owned subsidiary ("U.S. Equity")). In addition, the Institutional Lenders, on the one hand, and the Trust and the Corporation, on the other, released all of their claims against the other parties arising during the debt restructuring process. At the First Closing, the Trust and the Corporation entered into a warrant agreement (as amended, the "Warrant Agreement") that originally provided that the Trust and the Corporation (or, if the merger of the Trust and the Corporation described below (the "Merger") occurs, the surviving company) would issue to the Senior Lenders at the Third Closing (as defined below) 10-year warrants (the "Warrants") to purchase that number of shares equal to 9.9% (or if the Merger has occurred; 15%) of the Paired Shares then outstanding at an exercise price of $.625 cents per share, which price was subject to adjustment under certain circumstances. The second closing under the Credit Agreement (the "Second Closing") was held on March 29, 1993 at which time the Trust acquired all of the assets of U.S. Equity for $1,575,000 eliminating the minority interest of $676,000 and increasing hotel assets by $899,000. At the Second Closing, the maturity date of the Restructured Debt was extended until September 15, 1993, and the Institutional Lenders were granted liens on and security interests in the five hotels and substantially all of the other assets formerly owned by U.S. Equity and acquired by the Trust. Pursuant to a series of six extension agreements, the maturity date of the Restructured Debt was extended from September 15, 1993 to February 28, 1994. At an interim closing held on February 28, 1994 (the "Interim Closing"), the Credit Agreement was amended to, among other things, eliminate the Trust's ability to issue the deferred interest notes described below, to allow the Trust to apply all of the net proceeds from asset sales and of insurance or condemnation proceeds received by the Trust in 1994 in excess of $5 million, as described below, to the next principal payment or payments due on the Restructured Debt, and to require the Trust to pay in cash certain costs incurred by the Lenders in connection with the Restructured Debt. In addition, the Lenders were collaterally assigned security interests in and liens on substantially all of the Intercompany Leases and the monies received by the Corporation in connection with the operation of those hotels, and the maturity date of the Restructured Debt was extended until June 2, 1994. At the Interim Closing, the Warrant Agreement was amended to provide for the immediate issuance to the Lenders of Warrants for an aggregate of 1,333,143 Paired Shares at the exercise price originally provided for in the Warrant Agreement. Assuming that the Trust does not fail to pay any monies owed to the Institutional Lenders under the Credit Agreement and the Restructured Debt has not otherwise been accelerated, the Warrants are subject to cancellation as follows: (1) if on or before August 31, 1994, the Trust's cumulative principal payments under the Term Loan equal or exceed $13,000,000, one-third of the warrants will be canceled; (2) if as of August 31, 1996, the Trust's cumulative principal payments under the Term Loan equal or exceed $40,000,000, an additional one-third of the Warrants will be canceled; and (3) if on or before April 30, 1998, all amounts outstanding under the Credit Agreement have been repaid and the Trust pays a fee of $1,300,000 to the Institutional Lenders, the remaining one-third of the Warrants will be canceled. The third closing under the Credit Agreement (the "Third Closing") is currently scheduled to be held on or prior to June 2, 1994. At the Third Closing, the final maturity date of the Restructured Debt will be extended until April 30, 1998. The Credit Agreement requires in connection with the Third Closing that the Trust and the Corporation seek the approval of their respective shareholders to merge. If the Merger is accomplished, the surviving entity will not qualify under Federal income tax laws as a REIT. F-20 44 A $1,000,000 principal payment was made on the Term Loan on August 31, 1993. If the Third Closing occurs, minimum cumulative principal payments under the Credit Agreement for principal owed as of December 31, 1993 will be due as follows:
Date Cumulative Principal Payments -------------- ----------------------------- August 31, 1994 $ 10,000,000 August 31, 1995 19,000,000 August 31, 1996 27,000,000 August 31, 1997 52,000,000 April 30, 1998 128,802,000
On April 30, 1998, all amounts then outstanding under the Credit Agreement are due, including the remaining principal amount of the Term Loan and the then outstanding borrowings under the Revolving Line of Credit, as well as any deferred interest and capitalized expenses as described below. The Trust has the option to prepay all or part of the Credit Agreement indebtedness without penalty at any time. Net cash proceeds from the sale of hotel assets are required to be applied to prepay the Restructured Debt. Up to the first $5,000,000 of such proceeds may be applied to pay amounts outstanding under the Revolving Line of Credit ($9,425,000 was outstanding at December 31, 1993) any other proceeds must be applied to prepay the Term Loan. Except as otherwise described above with respect to 1994, to the extent that the cumulative net cash proceeds applied against the Term Loan in any payment period exceed the next principal payment due by more that $5,000,000, the amount in excess of $5,000,000 must be applied one-half to the next principal payment(s) then due under the Term Loan in direct order of maturity and one-half to the principal payment due on April 30, 1998. Interest on the principal amounts outstanding under the Credit Agreement notes was originally at a stated rate of prime plus 2%. However, because the Merger had not occurred on or prior to the 300th day after the First Closing, the stated interest rate was increased to prime plus 3% from November 24, 1993 until the Merger takes place. If the Merger takes place, principal amounts outstanding under the Credit Agreement notes will bear interest at the original stated rate of prime plus 2%. The Trust has the option to pay interest at a lesser rate, if applicable, of 7.5% per annum through August 31, 1994, 8.0% per annum from September 1, 1994 through August 31, 1997, and 9.0% per annum from September 1, 1997 through April 30, 1998, with the difference between the interest accrued and the interest paid being added monthly to the principal amount of the Restructured Debt. The Credit Agreement originally provided that the Trust under certain circumstances could defer for up to one year, the payment of up to $2,000,000 of interest payable on the Restructured Debt with respect to the period ending on the date of the Third Closing by issuing deferred interest notes to the Institutional Lenders. During February and March of 1993, an aggregate of $1,623,000 in interest was so deferred. In connection with the Interim Closing, the deferred interest notes were paid and further deferrals are no longer available. The Credit Agreement requires the Companies to maintain a specified minimum adjusted net worth and a specified minimum ratio of cash to cash interest plus capital expenditures, as defined. At December 31, 1993 the Trust was in compliance with these covenants. In addition, the Credit Agreement contains covenants that restrict, among other things, the Trust's ability to acquire or dispose of assets, to make investments and to incur additional indebtedness, and that prohibit the payment of distributions to shareholders. In addition to imposing operating restrictions and reporting requirements, the Credit Agreement establishes daily operating cash thresholds, as defined. If these thresholds are exceeded by the Trust and the Corporation, the excess amounts must be applied to reduce the borrowings then outstanding under the Revolving Line of Credit, but amounts so applied are available for future borrowings. The Trust is required by the Credit Agreement to pay costs incurred by the Institutional Lenders in connection with the debt restructuring during the term of the Credit Agreement. To the extent that annual costs exceed $250,000, the Trust may elect to add the excess to the principal balance of the Term Loan. In connection F-21 45 with the Interim Closing, the Trust paid in cash the $250,000 which would have otherwise been payable in respect of 1994 and agreed to pay in cash an additional $250,000 of such costs in June 1994. In order to meet the payment terms of the Credit Agreement, the Trust and the Corporation are seeking to sell hotel assets. In the event that the Trust or the Corporation cannot meet the requirements of the Credit Agreement and any of the Institutional Lenders elect to exercise certain remedies, the Trust and the Corporation may be required to file for reorganization under the Federal Bankruptcy Statute. 3. Hotel Sales and Reserve for Losses. In 1991 the Trust and Corporation recorded provisions for investment losses of $7,876,000 and $713,000, respectively. The 1991 provisions primarily resulted from the continuing deterioration of the market for small to medium size hotel/casino properties in Las Vegas, overbuilding in the hotel market, difficulty in obtaining third party financing and the impact of the economic recession. During the year ended December 31, 1991, the Trust and the Corporation sold their interests in three hotel assets, the Ramada Inn in Indian Wells, California, the Days Inn in Brunswick, Georgia, and the Days Inn in Albany, Georgia, and terminated a ground and building lease for the Ramada Inn in St. Charles, Missouri. The Indian Wells property was sold for $14,800,000 in cash. The Brunswick property was sold for $1,200,000 consisting of $227,000 in net cash proceeds and a $900,000 promissory note secured by the hotel. The Albany property was sold for $1,200,000, consisting of $86,000 in net cash proceeds and a $1,050,000 promissory note secured by the hotel. The Albany promissory note bears interest at 10% per annum payable monthly with unpaid principal and interest due in 1996; the Brunswick note had identical terms but was paid in full in 1992. During 1991, as a result of the three property sales, the Trust and Corporation recognized net gains of approximately $390,000 and $1,208,000, respectively. During the year ended December 31, 1992, the Trust and the Corporation sold their interests in three hotel assets, the Days Inn Texas Stadium, Irving, Texas, the Best Western Merrimack Inn, Merrimack, New Hampshire and the Days Inn, Spartanburg, South Carolina. The Irving property was sold in March 1992 for $1,950,000 consisting of $172,000 in net cash proceeds and a $1,650,000 promissory note secured by the hotel. The Merrimack property was sold for $1,800,000 consisting of $259,000 in net cash proceeds and a $1,440,000 promissory note secured by the hotel. The Spartanburg property was sold for $875,000 consisting of $57,000 in net cash proceeds and a $775,000 promissory note secured by the hotel. The Irving note bears interest at 9% per annum with accrued interest and principal due monthly based on a 30-year amortization schedule, with all unpaid principal and interest due in March, 1997. The Merrimack note bears interest at 9% per annum with accrued interest and principal due monthly based on a 30-year amortization schedule, with all unpaid principal and interest due in July, 1997. The Spartanburg note bears interest at 9% per annum with interest and principal due monthly based on a 30-year amortization schedule, with all unpaid principal and interest due in September, 1998. During 1992, the Trust recognized a loss of $791,000 and the Corporation a gain of $4,000 on sales of hotel assets, including a $91,000 discount recorded by the Trust resulting from the early payoff in 1992 of the mortgage note receivable relating to the Brunswick, Georgia property sold in 1991. In 1992, the Trust recorded a provision for investment losses of $3,196,000 which reflected the deterioration of hotel values located in the Southeast, and the acceptance of offers for the sale of hotels at amounts lower than net book value. During the year ended December 31, 1993, the Companies sold their interests in four hotel assets, the Best Western located in Smyrna, Georgia, the Vantage Hotel located in Tucker, Georgia, the Best Western Motor Hotel in Santa Maria, California, and the Ramada Inn-Westport in St. Louis, Missouri. The Smyrna property was sold for an all cash price of $1,600,000. The Tucker property was sold for $2,485,000 consisting of approximately $500,000 in cash and a $1,985,000 promissory note secured by the hotel. The Tucker note bears interest at 9% per annum with accrued interest and principal due monthly based upon a 25-year amortization schedule, with all unpaid principal and interest due in June 1998. The Santa Maria property was sold for an all cash price of $140,000. The St. Louis property was sold for an all cash price of $2,500,000. F-22 46 For the year ended December 31, 1993, the Trust recognized a loss of $53,000 and the Corporation a gain of $74,000 on sales of hotel assets. In 1993, the Trust recorded a provision for investment losses of $2,369,000 primarily as a result of the acceptance of offers for the sale of hotels at amounts lower than net book value. 4. Mortgage Notes Receivable. Jefferson City Ramada Inn In August 1987, the Trust sold the Ramada Inn in Jefferson City, Missouri, to JCR, Inc. ("JCR"). In connection with such sale, JCR executed and delivered to the Trust a promissory note (the "JCR Note") in the original principal amount of $4,500,000, secured by a first mortgage on the property. The outstanding principal balance of the JCR Note was due September 1992, and bore interest at 11% per annum. After JCR failed to make the principal and interest payments due on the JCR Note in January and February 1991, the Trust sent to JCR a notice of default and accelerated the indebtedness evidenced by the JCR Note. In December 1991, the Trust and JCR agreed to a restructuring pursuant to which the Jefferson City Ramada Inn was sold by JCR to Jefftel, Inc., a Missouri corporation ("Jefftel") and an associate of JCR; the Trust received from Jefftel a cash payment in the amount of $1,000,000; and Jefftel assumed JCR's indebtedness to the Trust in respect of the hotel. Although repayment of such debt continues to be secured by the hotel, the outstanding principal amount of such indebtedness was reduced to $1,800,000, with the $1,654,000 difference being charged against the reserve for investment losses. The JCR note bears interest at an annual rate of 11% with principal and interest payable monthly based on a 30-year amortization schedule, with unpaid principal and interest due in December, 1996. Columbus Best Western North In January 1992, in settlement of various disputes between the Trust, the Corporation as the general partner of Columbus Hotel Limited Partnership and its limited partners, and in lieu of foreclosure by the Trust on a $6,127,000 mortgage ownership of the Columbus Best Western North was transferred to the Trust. The fair value of the hotel assets received by the Trust upon cancellation of its note approximated the net carrying value of the mortgage note receivable at December 31, 1991. Other At December 31, 1993, in addition to the MHLP notes discussed in Note 5, the Trust held nine promissory notes secured by mortgages including the JCR note described above. Eight notes ($11,405,000 in aggregate principal amount at December 31, 1993), representing nine hotels, are secured by first mortgages, and one note ($238,000 in aggregate principal amount at December 31, 1993), is secured by a second mortgage. At December 31, 1991, the Trust held a $223,000 note secured by a second mortgage on a shopping center which was foreclosed upon by the first mortgage holder during the year ended December 31, 1992, resulting in the cancellation of the Trust's second mortgage and the recording of a provision for investment losses. The notes have fixed interest rates ranging from 8.75% to 12% per annum, and two of the notes (representing three properties) provide for contingent interest based on a percentage of gross revenues of the properties securing such notes. The maturity dates of the notes range from 1994 to 2017. Aggregate principal payments under the mortgage notes receivable due within one year of December 31, 1993 are $1,655,000. As of December 31, 1993 and 1992, the reserve for investment losses for the mortgage notes receivable amounted to $140,000. 5. Milwaukee Marriott Hotel. In December 1985, the Trust sold its interest in the Milwaukee Marriott Hotel to Milwaukee Brookfield Limited Partnership ("Brookfield"). In connection with the sale, the Trust received a second mortgage note (the "Second Mortgage") from Brookfield in the original principal amount of $13,200,000 with interest payable at 12.37% per annum through December 1990, and interest thereafter payable at 10.5% per annum, plus additional interest equal to 3% of gross revenues of the Milwaukee Marriott, as defined. The Second Mortgage was due and payable in full in December 1995. At the time the Second Mortgage was received, it was discounted to reflect an F-23 47 effective yield of 13% per annum; as a result, the original carrying amount of the Second Mortgage was $11,991,000. In July 1991, ownership and operation of the Milwaukee Marriott was reorganized and ownership of the hotel was transferred from Brookfield to Moorland Hotel Limited Partnership, ("MHLP"), a limited partnership in which the Corporation has a 51% interest and is the sole general partner and Brookfield is the sole limited partner. In connection with the reorganization, the outstanding principal amount of the second mortgage note to the Trust was reduced to $11,000,000, with the $991,000 difference on the Trust's books being charged to the provision for investment losses. The second mortgage note had a principal amount of $11,000,000, and was due in full in 1996. Interest on such principal accrued at an annual rate of 10.5% and was payable monthly, but only from the cash flow of the hotel remaining after payment of amounts due to the holder of the first mortgage on the hotel, the Corporation's management fee and all other expenses of the property. Interest deferred was added to the previous month's principal balance of the promissory note. The operations of MHLP are consolidated into the Corporation's financial statements from the date of reorganization and, accordingly, the Trust has recorded the note receivable from MHLP as a note receivable from the Corporation. The Corporation and MHLP entered into an agreement for the Corporation to manage the property. In addition, MHLP entered into an assignment and forbearance agreement with Marriott Corporation ("Marriott"), the franchisor. This agreement, among other things, required MHLP to renovate the hotel to Marriott standards. The renovation was substantially complete at December 31, 1993. During 1992, MHLP, Aetna Life Insurance Company ("Aetna"), the holder of the first mortgage on the Milwaukee Marriott (the "Aetna Note"), Marriott, the Trust, the Corporation, and Brookfield and various partners of Brookfield reached agreements arranging financing for the renovation of the Milwaukee Marriott and restructuring of debt for MHLP. Effective December 1, 1992, Aetna agreed to defer for the period December 1, 1992 through November 30, 1993, the monthly principal and interest payments on its first mortgage note, which accrues interest at 11.25% per annum, with the deferred interest added to principal monthly. Beginning December 1, 1993, the loan amortizes in equal monthly installments over a period of 17 years at 10% interest per annum until January 1, 1996, at which time all unpaid interest and principal are due, including appreciation interest ("Appreciation Interest") . Appreciation Interest is defined as 50% of the aggregate principal reduction in the Aetna mortgage from December 1, 1993 until the loan is due in full as provided in the agreement. The amount of the Aetna Note outstanding totaled $10,017,000 at December 31, 1993. Marriott agreed to loan MHLP $750,000 secured by a second deed of trust on the hotel for the purchase of equipment from a Marriott subsidiary. The second mortgage note bears interest at 9% per annum, payable monthly beginning May 31, 1993 through April 30, 1994, at which time fixed monthly payments of principal and interest of approximately $49,000 become due until December 31, 1994, at which time all unpaid interest and principal are due. The Trust agreed to loan MHLP $1,000,000 to be used to complete the renovation of the Milwaukee Marriott. The loan is secured by a third deed of trust on the hotel and bears interest at 10.5% per annum, payable monthly. Under certain circumstances, as defined in the agreement, interest is deferred and added to the principal of the note monthly. The third mortgage note outstanding totaled $1,102,000 as of December 31, 1993. The Trust may declare due and payable the principal balance and any unpaid accrued interest thereon at any time after January 1, 1994 through the maturity date of the note of January 1, 1996. The second mortgage note held by the Trust of $11,000,000 was modified as of December 31, 1992 by adding deferred and previously unpaid interest of $1,667,000 to principal due under the note and converting the note to a fourth mortgage note. Further, $1,417,000 of interest at 10.5% per annum for the year ended December 31, 1993, was deferred monthly and added to principal due under the loan. The fourth mortgage note outstanding totaled $14,084,000 as of December 31, 1993. Thereafter, interest is payable monthly unless deferred under the provisions of the loan agreement until January 1, 1996 at which time all remaining unpaid interest and principal are due. F-24 48 The Corporation agreed to defer and convert to a note up to $250,000 of management fees due under its management agreement with MHLP for a period of up to twelve months commencing with base management fees due after January 1, 1993. The deferred fees bear interest at 9% per annum, which were added to the principal balance of the note through December 1, 1993. Thereafter, the note is due in twelve equal monthly installments of principal and interest commencing on January 1, 1994 at 12% interest per annum. All unpaid interest and principal is due December 1, 1994. The $600,000 original loan made by GSI Acquisition Company, L.P., a limited partner of Brookfield, ("GSI"), was modified as of December 31, 1992, by converting deferred and previously unpaid interest of approximately $86,000 to principal. For the year ending December 31, 1993 interest at 10% per annum was deferred monthly and added to the principal balance, which balance totals $762,000 at December 31, 1993. Thereafter, interest is payable monthly unless deferred under the provisions of the agreement until January 1, 1996 at which time all remaining unpaid interest and principal are due. The Trust evaluated the collectibility of the notes receivable secured by the Milwaukee Marriott Hotel as of December 31, 1993. Factors considered by the Trust in performing the evaluation included the discounted estimated future cash flow (at 11.0%) over a five-year period. The Corporation evaluated the recoverability of the net book value of the property as of December 31, 1993. Factors considered by the Corporation in performing the evaluation included the undiscounted estimated future cash flow of the property over a five-year period. Based upon the evaluations, no provision for losses was required. 6. Real Estate Investments and Intercompany Transactions. At December 31, 1993, the Trust owned equity interests in twenty-nine hotels, including two hotel/casinos. Of that number, twenty-three properties were owned in fee, five were held pursuant to long-term leases and one was owned through a 5% general partnership interest in a joint venture that owns the Omaha Marriott Hotel. Twenty-five of the Trust's hotels (including the two hotel/casinos) are leased to the Corporation or its subsidiaries. Three hotels have been leased to and are operated by Northview Corporation, formerly Vagabond Inns, Inc. The Omaha Marriott Hotel has been leased to an affiliate of the Corporation, and is managed by Marriott pursuant to a long-term management agreement. As of December 31, 1993, eight of the hotels leased by the Corporation from the Trust are being managed by third-party operators. The third-party management agreements are generally for three-year terms expiring in 1995, subject to certain cancellation provisions. Base management fees range from 2% to 2-1/2% of gross revenues with incentive management fees based upon hotel profitability. The leases are generally long-term and generally provide for annual base, or minimum rents, plus contingent, or percentage rents based on the gross revenues of the properties and are accounted for as operating leases. The leases are "triple-net" in that the lessee is generally responsible for paying all operating expenses of the properties, including maintenance, insurance and real property taxes. The lessee is also generally responsible for any payments required pursuant to underlying ground leases. Most leases provide for cancellation by the Trust in the event that the Trust does not earn a specified rent, or by the lessee (including the Corporation) in the event the lessee does not earn a specified net operating profit. As of December 31, 1993, the Corporation was indebted to the Trust for an aggregate of $87,486,000 (including the $14,084,000 and $1,102,000, MHLP mortgage notes - see Note 5). The debt to the Trust bore interest at various rates ranging from 6.5% to 12% at December 31, 1992. Effective January 1, 1993, the Trust and Corporation modified the leases between the Trust and the Corporation to, among other things, adjust the rents payable by the Corporation, and restructured the Corporation's existing borrowings from the Trust to include all outstanding borrowings plus accrued but unpaid rent of $448,000 and interest as of December 31, 1992. The borrowings, which are due on demand, were non-interest bearing for the year ending December 31, 1993, with interest at prime plus 2% interest payable monthly, thereafter. Effective January 1, 1994, the interest moratorium was extended until December 31, 1994, with interest at prime plus 2% interest payable monthly, thereafter. Future F-25 49 advances by the Trust to the Corporation, if required, will be included in demand note(s) under the same terms and conditions. Because the Corporation has experienced substantial operating losses and cash flow deficiencies, and has a deficiency in net assets, the Corporation has been unable to pay all amounts due to the Trust. In accordance with the Debt Restructuring, the Trust and the Corporation are required to merge, subject to shareholder approval (See Note 2). In the event such a merger takes place, amounts receivable by the Trust would be offset by amounts payable from the Corporation. Rents accrued by the Trust from leased hotel properties are summarized as follows (in thousands): Years Ended December 31, ------------------------
1993 1992 1991 ------- ------- ------- Corporation: Minimum $14,184 $18,136 $19,287 Contingent 2,297 3,041 2,806 ------- ------- ------- 16,481 21,177 22,093 ------- ------- ------- Other: Minimum 437 437 437 Contingent 402 510 499 ------- ------- ------- 839 947 936 ------- ------- ------- Total $17,320 $22,124 $23,029 ======= ======= =======
Minimum future rents at December 31, 1993 due under non-cancelable operating leases for the years ending December 31 are as follows (in thousands):
1994 1995 1996 1997 1998 Thereafter ------- ------- ------- ------- ------- ---------- Corporation . $14,615 $14,217 $11,577 $11,577 $11,577 $38,962 Other . . . 437 437 437 437 426 283 ------- ------- ------- ------- ------- ------- Total . . . $15,052 $14,654 $12,014 $12,014 $12,003 $39,245 ======= ======= ======= ======= ======= =======
The Corporation is committed under its leases with the Trust to pay the rents payable with respect to seven ground leases which expire in 1994 through 2029, including renewal options. The leases generally provide for a minimum rent plus a percentage of gross revenues of the properties in excess of the minimum rent. Future minimum lease payments under the leases are $319,000 per year through 1998, and $7,270,000 thereafter. The Trust is the primary obligor under the leases; however, the Corporation as lessee/operator of the hotels makes payments under these leases directly to the lessors. Rent expense incurred by the Corporation as a lessee/operator under these leases was $854,000, $787,000, and $846,000 in the years ended December 31, 1993, 1992 and 1991, respectively. In addition, the Trust is committed under an office lease. Future minimum lease payments under the office lease are $85,000 in 1994 and 1995. 7. Mortgage and Other Notes Payable. At December 31, 1993, the Trust had outstanding six mortgage notes payable which are secured by seven of the Trust's hotels, with a net book value at December 31, 1993 of $49,875,000. At December 31, 1993 and 1992, the Trust had the following outstanding debt obligations: F-26 50
December 31, December 31, 1993 1992 ------------ ------------ Mortgage Notes: 11.75% first mortgage note, due in 2015, callable by lender in 1995, 2000, 2005, or 2010 $ 6,417,000 $ 6,477,000 12.875% first mortgage note, due in 1994 9,478,000 9,568,000 8.50% first and second mortgage notes, due in 1997 and 1998 891,000 12.625% first mortgage note, due in 1994 4,195,000 4,301,000 9.25% first mortgage note, due in 1994 2,010,000 2,151,000 10.25% first mortgage note, due in 2001 5,447,000 5,716,000 9.0% first mortgage note, due in 1997 177,000 214,000 ----------- ----------- Total mortgage notes payable $27,724,000 $29,318,000 =========== ===========
Aggregate principal payments due for the years ending December 31 are $16,088,000 in 1994, $6,723,000 in 1995, $412,000 in 1996, $456,000 in 1997, $449,000 in 1998, and $3,596,000 thereafter. At December 31, 1993 and 1992, the Corporation had the following outstanding debt obligations:
December 31, December 31, 1993 1992 ------------ ----------- Secured by Milwaukee Marriott Hotel: 10.0% first mortgage note, due 1996 $10,017,000 $ 9,050,000 9.0% second mortgage note, due 1994 754,000 10.5% fifth mortgage note, interest only, due 1996 762,000 686,000 12.0% sixth mortgage note, interest only (to the extent of available cash flow), due 1996 2,000,000 2,000,000 9-10% notes payable, due 1995-1996 297,000 418,000 ----------- ----------- 13,830,000 12,154,000 Other: 9.75% first mortgage note, due 1997 438,000 467,000 Obligations under capital leases 92,000 135,000 ----------- ----------- Total mortgage and other notes payable $14,360,000 $12,756,000 =========== ===========
At December 31, 1993, the Corporation's outstanding mortgage notes are secured by the Milwaukee Marriott Hotel which had a net book value of $23,786,000. Minimum lease and principal payments on the Corporation's indebtedness for the years ending December 31 are due as follows:
Minimum Future Principal Payments Year Lease Payments Due Under Notes ----- -------------- ------------------ 1994 $49,000 $ 1,153,000 1995 32,000 431,000 1996 18,000 12,357,000 1997 327,000 1998 ------- ----------- Total 99,000 $14,268,000 Amount representing interest 7,000 =========== ------- Present value of future minimum lease payments $92,000 =======
F-27 51 At December 31, 1993 and 1992 the Corporation had $1,222,000 and $1,321,000, respectively, in assets (less $828,000, and $780,000, respectively, in accumulated amortization) recorded under capital leases. Such amounts are included in furniture, fixtures and equipment. 8. Shareholders' Equity. Warrants to purchase paired shares At December 31, 1993, there were outstanding 1,659,974 warrants to purchase Paired Shares at an exercise price of $16.95 per Paired Share through September 1996. Additional warrants were issued to the Institutional Lenders under the terms of the Credit Agreement (See Note 2). Share option plans The Trust and the Corporation each have Incentive and Non-Qualified Share Option Plans which provide for the purchase of up to an aggregate of 700,000 Paired Shares by Trustees, Directors, officers and employees pursuant to option grants. During the year December 31, 1993, the Trust and the Corporation granted options to purchase 45,000 Paired Shares at an exercise price of $2.625 per Paired Share. During the year ended December 31, 1992, the Trust and Corporation granted options to purchase 100,000 Paired Shares at an exercise price of $.75 per Paired Share. No options were granted during the year ended December 31, 1991. Such options, which are granted at fair market value on the date of grant, vest over three years. No options have been exercised as of December 31, 1993. At December 31, 1993, outstanding options granted under all plans of the Trust and Corporation (including options granted to officers and directors of a company previously acquired by the Trust) aggregated 212,000 Paired Shares. At December 31, 1993, options for 165,667 Paired Shares are fully vested with exercise prices ranging from $.75 to $22.68 per Paired Share. Share purchase plans Prior to December 1989, the Trust and the Corporation each had a Share Purchase Plan, whereby an aggregate of 200,000 Paired Shares were available to be purchased by Trustees, Directors, officers and employees at their fair market value on the date of sale with monies borrowed from the Trust or Corporation. In December 1989, the Trust's Board of Trustees and the Corporation's Board of Directors voted to terminate the Share Purchase Plans for purposes of prospective eligibility, and to irrevocably waive the right of the Trust and the Corporation to accelerate the payment of a note executed by a participating Trustee or Director upon termination of such participant's relationship with the Companies. In January 1991, the Companies entered into agreements with certain Trustees and Directors who had agreements outstanding pursuant to the Share Purchase Plans to which each such Board member agreed to stand for re-election as a Trustee or Director at the next annual shareholders' meeting if requested to do so by their respective Boards', or if the Boards' did not so request, to act, for a period of up to two years and at mutually agreed upon times and places, as an advisor to the Trust or the Corporation on matters within such Board member's experience and expertise, and the Trust or the Corporation agreed that any outstanding promissory note executed by such Board member in partial payment for Paired Shares purchased under the Share Purchase Plans would be amended to cause such promissory note to be without recourse to the maker. In March 1992, certain of the aforementioned notes were restructured to bear an annual interest rate of 8% as of February 2, 1992, with such notes to be payable interest only from February 2, 1992 until February 15, 1995, at which time the principal and interest accrued will become payable in equal monthly installments over a ten-year period. The share purchase agreement between Mr. Young and the Corporation was terminated in connection with his December 31, 1992 resignation as an officer of the Corporation, and the 10,000 Paired Shares acquired by F-28 52 Mr. Young pursuant to that agreement were assigned by him to the Corporation. Mr. Young's share purchase note in the amount of $112, 500, was written off at December 31, 1993. The share purchase notes of other former officers, directors and employees aggregating $63,917 were also written off at December 31, 1993. Preferred shares The Corporation has 10,000,000 authorized preferred shares, $1.00 par value, none of which are issued or outstanding. 9. Commitments and Contingencies. Litigation In late 1991 and early 1992 three complaints were filed against the Trust and the Corporation and certain other related persons. As amended, two of the complaints allege that the Trust and the Corporation, a Director and officer of the Corporation and a former officer/Trustee of the Trust violated the Racketeer Influenced and Corrupt Organizations Act ("RICO") and Federal and California securities laws and acted fraudulently in connection with the Trust's and the Corporation's public disclosures with respect to the Trust's purchase of its two hotel/casinos and the Ramada Inn in Indian Wells, California. Both of these complaints are seeking class action certification. The third complaint was filed purportedly on behalf of the Trust and the Corporation and alleges that certain former and present Trustees and Directors breached their fiduciary duties in connection with the purchase of the Ramada Inn in Indian Wells and the two hotel/casinos. As of December 31, 1993, the Companies have provided for a $500,000 provision for loss of which $426,000 in 1992 and $74,000 in 1991 have been included in administrative and operating expenses for legal expenses already paid or expected to be paid, which is equal to the Companies deductible under their directors and officers liability insurance policies. In March 1994, plaintiffs and defendants in the litigation have agreed in principle that subject to conditional certification for settlement purposes of the classes described in two of the complaints and to certain other court approvals, the third complaint will be dismissed with prejudice and all claims that were made or could have been made in the litigation will be released, upon the establishment of a $3,205,000 cash settlement fund to be distributed to members of the certified classes. Of the settlement fund amount, $2,500,000 will be paid by the insurance company that issued Hotel Investors' directors' and officers' policy applicable to the periods to which the litigation relates, $400,000 will be paid by the Trust and the Corporation, and $350,000 will be paid by Messrs. Rothman and Young. Legal fees and other costs incurred by the defendants in the litigation prior to October 12, 1993 would be paid by the Trust and the Corporation; subsequent defense costs would be paid by the above-mentioned insurance company. The agreement in principle also contemplates that Messrs. Rothman and Young will provide to the Corporation an irrevocable letter of credit in the amount of $800,000 (such amount will be recorded as income by the Corporation upon final court approval) and that the Corporation will accept the termination of various management agreements and arrangements between Western Host and certain partnerships of which Messrs. Rothman and Young are general partners (See Note 10) if the litigation is completed. A settlement agreement implementing the terms of the agreement in principle is being prepared and is anticipated to be signed in April 1994. However, there can be no assurance that the settlement agreement will be consummated or that the settlement will be ultimately approved by the court. At December 31, 1993, the Companies have provided an additional $438,000 for expenses expected to be incurred as a result of the settlement agreement. (See Note 13). Environmental matters In connection with the Debt Restructuring (see Note 2), the Trust obtained in the latter part of 1991 preliminary or "Phase I" environmental site assessments with respect to the Trust's hotel properties and the Milwaukee Marriott Hotel. F-29 53 The potential for environmental impairment was assessed as moderate to high only at the Embassy Suites Hotel in Phoenix, Arizona. According to the assessment of that property, petroleum hydrocarbons are present in the land beneath this hotel; however, the Trust could not determine without further investigation the extent of the potential contamination or whether this contamination resulted from the underground storage tanks placed on the property by the property's former owner or from similar tanks located on land adjacent to the property, which tanks are known to have suffered leakage. A magnetic survey conducted on the property did not detect the continuing existence of the underground storage tanks on Hotel Investors' property, and the environmental consultant did not recommend that any further action be taken. Phoenix municipal authorities have indicated an awareness of possible ground water contamination in the area, but to date have taken no action. A tank leak test conducted at the Bourbon Street Hotel in early 1992 revealed no evidence of leakage. A release of petroleum from an underground storage tank at the Bay Valley Hotel and Resort was reported to the appropriate state agency in 1992. After the tank and surrounding soils were removed, additional soils and groundwater testing was performed, which revealed environmental contamination in a localized area. The Trust plans to test the site in the near future to determine whether it qualifies as a "low priority site" under the relevant state law. If the site qualifies for that status, the Trust anticipates conducting quarterly groundwater sampling for one year, and then determining whether any remedial work will be necessary. If the site does not qualify for low priority status, the Trust may be required to undertake remediation more quickly. Any further investigation and remediation costs that are incurred may be reimbursed to Hotel Investors by a Michigan environmental fund, although there is some question as to whether the fund will have sufficient resources to pay all claims made against it. If the Trust does not receive reimbursement for its future investigation and remediation costs, the Trust will bear those costs. Neither the Trust nor the Corporation has been identified by the U.S. Environmental Protection Agency or any similar state agency as a responsible or potentially responsible party for, nor has Hotel Investors been the subject of any governmental proceeding with respect to, any hazardous waste contamination. If Hotel Investors were to be identified as a responsible party, Hotel Investors in most circumstances would be strictly liable, jointly and severally with other responsible parties, for environmental investigation and clean-up costs incurred by the government and, to a more limited extent by private persons. Managements of the Trust and the Corporation expect that the cost of any required remediation would be the responsibility of the Trust. Based upon environmental reports, the Trust believes that a substantial number of its hotel properties incorporate potentially asbestos-containing materials. Under applicable current Federal, state and local laws, asbestos need not be removed from or encapsulated in a hotel unless and until the hotel is renovated or remodeled. The removal of asbestos from portions of the Milwaukee Marriott Hotel required in connection with the renovation of that property has been completed. Based upon the above-described environmental testing and facts known to management of the Trust and the Corporation, future remediation costs, if any, are not expected to have a material adverse effect on the Trust's and the Corporation's results of operations or financial position and compliance with environmental laws has not had and is not expected to have a material effect on the capital expenditures, earnings or competitive position of the Trust and the Corporation, and compliance with environmental laws has not had and is not expected to have a material effect on the capital expenditures, earnings or competitive position of the Trust and the Corporation. Performance bonds and restricted cash The Corporation is required to post performance bonds or cash collateral as security for certain obligations. At December 31, 1993, the Corporation had posted performance bonds totaling approximately $485,000 to cover such obligations; however, no amounts had been drawn against such bonds. At December 31, 1993, inventories, prepaid expenses and other assets include $145,000 and $2,006,000 for the Trust and the Corporation, respectively, which were restricted as to use. At December 31, 1992, inventories, prepaid expenses and other assets include $125,000 and $2,615,000 for the Trust and the Corporation, respectively, which were restricted as to use. Other than the performance bonds, the restricted cash of the Corporation primarily is the cash of MHLP (see Note 5). F-30 54 Vagabond Inns The Trust owns three Vagabond Inns that are leased to and operated by Northview Corporation d/b/a Calmark Hospitality Systems ("Calmark"). In March 1990, Calmark and its related entities filed for reorganization under Chapter 11 of the Bankruptcy Code. As of December 31, 1993, the Trust was owed approximately $458,000 in annual rents for periods prior to the bankruptcy filing, which amounts will be paid in eight quarterly installments at 8% interest per annum which began on March 1, 1993, under Calmark's plan of reorganization approved by the Federal Bankruptcy Court. In addition, the Trust via the quarterly installments, will be reimbursed for $100,000 in legal costs incurred in connection with the bankruptcy reorganization, which will be recognized as collected. The Trust has continued to receive all base and percentage rents from Calmark earned subsequent to the date of the bankruptcy filing. 10. Related Party Transactions. The Corporation, through its subsidiary Western Host, Inc. ("Western Host") manages seven properties owned by partnerships of which Ronald A. Young, former President and Chief Executive Officer and current Director of the Corporation, is a general partner (the "Western Host Partnerships"). The Corporation accrued management fees and administrative services fees pursuant to such management agreements of approximately $863,000, and $937,000, during the years ended December 31, 1992 and 1991, respectively. Termination agreement and management subcontracts - Effective December 29, 1992, Mr. Young and the Corporation entered into a termination agreement whereby Mr. Young tendered his resignation as President and Chief Executive Officer. Under the terms of the agreement, Mr. Young received payment of accrued vacation pay in the amount of $54,000 and assigned to the Corporation the ownership of the 10,000 Paired Shares which secured the non-recourse promissory note in the amount of $121,000, including interest, which was issued in connection with the 1987 Share Purchase Plan (See Note 8). In addition, Western Host agreed to subcontract its duties under the management contracts for six of the Western Host Partnerships to Westland Hotel Corporation, a hotel management company formed by Mr. Young. Under the terms of each subcontract, which is cancelable upon 30 days notice, Westland Hotel Corporation is required to remit to Western Host, Inc. all management fees collected from the Western Host Partnerships in excess of 3% of revenues, as defined. For the year ended December 31, 1993 management fees and other compensation payable by the Western Host Partnerships after payment of the submanagement fee totaled $308,000. At March 25, 1994 $242,000 of such fees remained unpaid and was not accrued at December 31, 1993. As of December 31, 1993 the Western Host Partnerships and/or Westland owed Western Host and/or the Corporation $100,000 representing amounts advanced for the expenses of the managed Western Host hotels which remains unpaid at March 25, 1994 and is included in inventories, prepaid expenses and other assets at December 31, 1993. At December 31, 1993, the Trust has an $800,000 unsecured note receivable from John Rothman, the former President and Chief Executive Officer of the Trust. The principal amount of the note receivable is due in 1999 and bears interest due annually at 10%. The Companies incurred legal fees from law firms in which a Trustee and officer of the Trust was or currently is a partner during the years ended December 31, 1993, 1992 and 1991 totaling $235,000, $955,000, and $901,000, respectively. 11. Industry Segment Information. The Corporation operates in two segments of the hospitality industry, hotel and gaming. The hotel segment consists of room, food and beverage and other revenues recognized in connection with the operation of hotels owned by the Corporation or under lease from the Trust, and income from management contracts. The F-31 55 gaming segment consists of net win from casino operations, as well as room, food and beverage and other revenues recognized in connection with the operation of the two hotel/casinos under lease from the Trust. F-32 56 The following information summarizes revenue and operating results by industry segment:
Years Ended December 31, ------------------------------------------ 1993 1992 1991 ----------- ----------- ----------- HOTEL: Revenue: Room . . . . . . . . . . . . $58,917,000 $60,068,000 $58,167,000 Food and beverage . . . . . . 23,337,000 23,975,000 22,786,000 Other . . . . . . . . . . . . 4,649,000 4,769,000 4,203,000 ----------- ----------- ----------- Hotel revenue . . . . . . . . 86,903,000 88,812,000 85,156,000 Management fees . . . . . . . 90,000 952,000 1,041,000 ----------- ----------- ----------- Total revenue . . . . . . . . 86,993,000 89,764,000 86,197,000 ----------- ----------- ----------- Expenses: Room . . . . . . . . . . . . 22,340,000 21,917,000 14,570,000 Food and beverage . . . . . . 15,116,000 15,256,000 16,792,000 Other (including undistributed operating expenses and . fixed charges) . . . . . 30,676,000 31,447,000 34,601,000 Rent to Trust . . . . . . . . 14,081,000 17,612,000 18,528,000 Depreciation and amortization 3,060,000 3,086,000 2,193,000 Allocated Corporate overhead . 950,000 1,600,000 1,288,000 Provision for loss . . . . . 713,000 ----------- ----------- ----------- Total expenses . . . . . . . 86,223,000 90,918,000 88,685,000 ----------- ----------- ----------- Operating income (loss) . . . . . . . $ 770,000 $(1,154,000) $(2,488,000) =========== =========== =========== GAMING: Revenue: Casino . . . . . . . . . . . 14,861,000 $14,461,000 $12,836,000 Room . . . . . . . . . . . . 4,305,000 3,709,000 2,941,000 Food and beverage . . . . . . 5,226,000 5,396,000 4,954,000 Other . . . . . . . . . . . . 5,370,000 4,930,000 3,706,000 Less promotional allowances . (2,257,000) (2,346,000) (1,828,000) ----------- ----------- ----------- Gaming revenue . . . . . . . 27,505,000 26,150,000 22,609,000 ----------- ----------- ----------- Expenses: Casino . . . . . . . . . . . 6,019,000 5,852,000 5,906,000 Room . . . . . . . . . . . . 2,042,000 1,894,000 1,687,000 Food and beverage . . . . . . 4,564,000 4,888,000 5,019,000 Other (including undistributed operating expenses and fixed . charges) . . . . . . . . . . 11,430,000 11,065,000 9,336,000 ----------- ----------- ----------- Expenses of gaming operations. 24,055,000 23,699,000 21,948,000 Rent to Trust . . . . . . . . 2,400,000 3,565,000 3,565,000 Depreciation and amortization. 477,000 262,000 331,000 ----------- ----------- ----------- Total expenses . . . . . . . 26,932,000 27,526,000 25,844,000 ----------- ----------- ----------- Operating income (loss) . . . . . . . . $ 573,000 $(1,376,000) $(3,235,000) =========== =========== ===========
F-33 57 A reconciliation of the combined segment operating income (loss) to the combined net loss of the Trust and the Corporation is as follows:
Years Ended December 31, ------------------------------------------- 1993 1992 1991 ----------- ----------- ------------ Combined operating income (loss) . . . . . . . . . . . . . . $ 1,343,000 $(2,530,000) $ (5,723,000) Interest and other income . . . . . 330,000 250,000 1,555,000 Interest expense . . . . . . . . . . (2,701,000) (5,372,000) (4,981,000) Corporate expenses . . . . . . . . . (2,115,000) (2,281,000) (1,983,000) ----------- ----------- ------------ Net income (loss) . . . . . . . $(3,143,000) $(9,925,000) $(11,132,000) =========== =========== ============ Additional financial data by industry segment for the Corporation is as follows: December 31, ----------------------------------------------------- 1993 1992 1991 ----------- ----------- ----------- IDENTIFIABLE ASSETS: Hotel . . . . . . . . . $41,712,000 $43,620,000 $44,792,000 Gaming . . . . . . . . 3,743,000 4,059,000 3,884,000 Corporate and other . . 4,538,000 5,932,000 7,131,000 ----------- ----------- ----------- Total . . . . . . . . . $49,993,000 $53,611,000 $55,807,000 =========== =========== =========== CAPITAL EXPENDITURES: Hotel . . . . . . . . . $ 4,859,000 $ 1,160,000 $ 1,167,000 Gaming . . . . . . . . 220,000 123,000 138,000 Corporate and other . . 126,000 7,000 29,000 ----------- ----------- ----------- Total . . . . . . . . . $ 5,205,000 $ 1,290,000 $ 1,334,000 =========== =========== =========== DEPRECIATION AND AMORTIZATION: Hotel . . . . . . . . . $ 3,060,000 $ 3,086,000 $ 2,193,000 Gaming . . . . . . . . 477,000 262,000 331,000 Corporate and other . . 65,000 54,000 134,000 ----------- ----------- ----------- Total . . . . . . . . . $ 3,602,000 $ 3,402,000 $ 2,658,000 =========== =========== ===========
The Trust is an owner/lessor of real property and does not "operate" in different segments, and is therefore not subject to disclosure by segment. The Trust's net investment (initial cost less accumulated depreciation and provision for loss) in the two Las Vegas hotel/casinos was $22,798,000, and $22,929,000 December 31, 1993 and 1992, respectively. F-34 58 12. Selected Quarterly Financial Information (Unaudited)
Combined Trust _________________________________________________ ______________________________________________ 1993 1992 1991 1993 1992 1991 _________________________________________________ ______________________________________________ Revenue . . . . . . . $27,831,000 $ 27,974,000 $ 26,222,000 $ 5,082,000 $ 6,795,000 $ 7,347,000 Net income (loss) . . (1,366,000) (2,380,000) (3,289,000) (208,000) 393,000 (10,000) Net income (loss) per share . . . . . (0.11) (0.20) (0.27) (0.02) 0.03 0.00 Cash distributions per share. . . - - - - - - Second Quarter Revenue . . . . . . . $30,310,000 $ 30,071,000 $ 29,563,000 $ 5,477,000 $ 6,837,000 $ 7,963,000 Net income (loss) . . (204,000) (352,000) (1,937,000) 41,000 1,188,000 (974,000) Net income (loss) per share . . . . . (0.02) (0.03) (0.16) 0.00 0.10 (0.08) Cash distributions per share . . . . . - - - - - - Third Quarter Revenue . . . . . . . $30,530,000 $ 30,598,000 $ 28,870,000 $ 5,198,000 $ 6,582,000 $ 7,221,000 Net income (loss) . . (1,268,000)(1) (3,112,000) (3,868,000) (1,412,000)(1) (1,957,000) (1,479,000) Net income (loss) per share . . . . . (0.10) (0.26) (0.32) (0.12) (0.16) (0.12) Cash distributions per share . . . . . - - - - - - Fourth Quarter Revenue . . . . . . . $28,484,000 $ 29,013,000 $ 28,781,000 $ 4,585,000 $ 6,570,000 $ 7,019,000 Net loss . . . . . . (4,194,000)(1) (13,899,000)(2) (12,990,000) (2,310,000)(1) (9,442,000)(2) (8,489,000) Net loss . . . . . . per share . . . . . (0.35) (1.14) (1.07) (0.19) (0.78) (0.70) Cash distributions per share . . . . . - - - - - -
Corporation ___________________________________________ 1993 1992 1991 ___________________________________________ First Quarter Revenue . . . . . . . $27,253,000 $27,541,000 $25,736,000 Net income (loss) . . (1,158,000) (2,773,000) (3,279,000) Net income (loss) per share . . . . . (0.10) (0.23) (0.27) Cash distributions per share. . . - - - Second Quarter Revenue . . . . . . . $29,421,000 $29,721,000 $27,016,000 Net income (loss) . . (245,000) (1,540,000) (963,000) Net income (loss) per share . . . . . (0.02) (0.13) (0.08) Cash distributions per share . . . . . - - - Third Quarter Revenue . . . . . . . $29,998,000 $30,397,000 $28,373,000 Net income (loss) . . 144,000 (1,155,000) (2,389,000) Net income (loss) per share . . . . . 0.01 (0.10) (0.20) Cash distributions per share . . . . . - - - Fourth Quarter Revenue . . . . . . . $28,156,000 $28,513,000 $29,236,000 Net loss . . . . . . (1,884,000) (4,457,000) (4,501,000) Net loss . . . . . . per share . . . . . (0.16) (0.36) (0.37) Cash distributions per share . . . . . - - -
(1) During the quarter ended September 30, 1993, the Trust recorded a provision for investment losses of $1,167,000. During the quarter ended December 31, 1993, the Trust recorded a provision for investment losses of $1,202,000 and the Trust and the Corporation each recorded a provision of $219,000 for expenses expected to be incurred upon settlement of shareholder litigation (see Note 9). (2) At December 31, 1993, the Trust recorded a provision of $8,713,000 for known future identifiable costs connected with the Restructuring. F-35 59 13. Subsequent Events. Reorganization On June 13, 1994, the Trust and the Corporation, subject to shareholder and stockholder approval, agreed with Starwood Capital, L.P., a private investment firm, to create an "UPREIT" structure. In connection with the "UPREIT" structure it is contemplated that two limited partnerships would be formed (the "Reorganization"). The Trust would be the general partner and contribute to SLT Realty Limited Partnership all of its assets subject to its liabilities. The Corporation and its subsidiaries would be the general partners and contribute to SLC Operating Limited Partnership all of their assets subject to their liabilities. Starwood Capital Group, L.P., and its affiliates would be the limited partners in the two partnerships and would contribute cash and a portfolio of hotel equity and mortgage interests, subject to certain existing debt. Starwood's limited partnership interests would be exchangeable into paired shares of the Trust and the Corporation, such that on a fully converted basis, Starwood would own between 67% and 75% of the outstanding paired shares of the Trust and Corporation (but subject to limitations to preserve the REIT status of the Trust and its paired share structure with the Corporation). Starwood also agreed, at the Trust's option, to purchase the Trust's Albany, Georgia property for approximately $6 million; and the Trust would use the proceeds to make certain payments on its outstanding senior secured debt and retire a portion of the warrants issued to its senior lenders in connection with the restructuring of the senior secured debt in January 1993. The Trust exercised the option in August 1994, accounting for the transaction as a financing and no gain or loss was recognized. In connection with the Reorganization, Starwood has agreed to contribute the Albany property to the partnership. In connection with the Reorganization, $63,000,000 of the debt between the Trust and the Corporation will be canceled. Income Taxes The Trust recently discovered that there were issues concerning its having met all of the requirements for maintenance of REIT status for prior years. On July 27, 1994, the Trust applied to the IRS for, and has subsequently received, permission to terminate its election to be taxed as a REIT retroactive to 1991 and to re-elect REIT status for 1995. Because the Trust had net losses and did not pay any dividends for 1991, 1992 and 1993 and expects to incur a net loss for tax purposes and not pay any dividends for 1994, the Trust will not owe any federal income tax and the Holders of Paired Shares will not be adversely affected for these years. In addition, the granting of the Trust's request does not effect the pairing status of the Trust and the Corporation shares. Litigation On July 20, 1994, the United States District Court for the Southern District of California entered a Final Judgment of Dismissal With Prejudice ("Final Judgment") of the two purported class actions filed in that Court. For additional information with respect to these actions and the related derivative action (the "Shareholder Actions"), filed in the Superior Court of the State of California for San Diego County see Note 9. Pursuant to the Final Judgment, the District Court, among other things, approved the settlement set forth in stipulations of settlement ("Stipulation") entered into among the plaintiffs and defendants in the Shareholder Actions, as well as the insurance company that issued Hotel Investors' directors and officers policy applicable to the period to which Shareholder Actions relate. Under the Final Judgment, all claims that were or might have been made in the Shareholder Actions are deemed released as of the Effective Date (as defined in the Stipulation), and a $3,205,000 cash settlement fund is to be established which, after the deduction of fees and costs to plaintiffs' counsel, will be distributed to qualified members of the certified plaintiff classes according to an allocation formula that includes a calculation based on certain shares that have opted out of the settlement. Of the settlement fund, $2,500,000 will be paid by the F-36 60 insurance company, $400,000 will be paid by Hotel Investors, and $350,000 will be paid by Messrs. John Rothman and Ronald Young. Upon completion of the claims administration process, any funds remaining, up to a limit of $325,000, shall be returned to the parties who contributed to the settlement fund on a pro rata basis. The parties contributing to the settlement fund have previously established a separate $45,000 fund to be used for purposes of notifying the classes and otherwise administering the settlement. Legal fees and other costs incurred by the defendants in the Shareholder Actions prior to October 12, 1993, will be paid by Hotel Investors; subsequent defense costs will be paid by the insurance company. An aggregate of approximately 1,199,000 shares opted out of the settlement. The Stipulation also requires that the Trust's Board of Trustees and the Corporation's Board of Directors establish a joint transaction committee of independent Trustees and Directors to make recommendations to those Boards with respect to any transaction proposed in the future by management and having a fair market value of $20 million or more. In connection with the settlement of the Shareholder Actions, Messrs. Young and Rothman and certain of their affiliated partnerships have terminated the management agreements that existed between those partnerships and the Corporation's subsidiary, Western Host, Inc. (the "Management Contracts"), and Western Host has agreed to forbear from disputing such action and has withdrawn as a general partner of two additional affiliated partnerships. In satisfaction of any damages that Hotel Investors may incur as a result of the termination of the Management Contracts, Messrs. Rothman and Young have provided to Hotel Investors an irrevocable letter of credit in the amount of $800,000 which has a one-year term. Upon final Court approval of the Shareholder Actions, proceeds from the letter of credit would be paid to Hotel Investors, and the parties to the Management Contracts, Messrs. Rothman and Young and Hotel Investors, will release all of their respective claims related to the termination of the Management Contracts. Ross Settlement Agreement Subsequent to the settlement of the Shareholder Actions described above, Leonard M. Ross and his affiliates ("Ross"), who hold 1,190,400 paired shares and had opted out of the settlement, have threatened litigation against the Trust and the Corporation. In October 1994, Starwood Capital Group, L.P. ("Starwood") entered into negotiations with Ross to settle the threatened litigation. Under the agreement being negotiated, Starwood would agree to purchase Ross' paired shares, at Ross' election, in a 60-day period beginning on the earlier of the first anniversary of the closing of the Reorganization or December 15, 1995 at a price of $5.625 per paired share plus 10% per annum less any distributions and insurance proceeds paid to Ross. Starwood would also have the right to elect to purchase such paired shares at the same time and on the same terms. The ultimate outcome of this matter cannot presently be determined. The estimated fair value of the put/call provisions of the Ross settlement agreement is approximately $2,649,000 and will be charged against the earnings of the Trust and Corporation in 1994 if the agreement is consummated. Certain Assets Sales In May 1994, the Best Western-South located in Austin, Texas which was subject to public condemnation for the purpose of highway construction, was sold to an agency of the State of Texas for an all cash price, resulting in a gain of $619,000 and $15,000 for the Trust and the Corporation, respectively. In August 1994, the Sheraton Inn located in New Port Richey, Florida and the Holiday Inn located in Brunswick, Georgia were sold for $4,300,000, consisting of net cash proceeds of $1,067,000 and a $3,070,000 promissory note secured by the properties, resulting in a gain of $70,000 and $16,000 for the Trust and the Corporation, respectively. F-37 61 In connection with the Reorganization, the Holiday Inn located in Albany, Georgia was sold to Starwood for an all cash purchase price of $6,000,000. No gain or loss was recorded as a result of the sale. The Trust's ability to sell hotels is restricted under the terms of the agreement with Starwood. Mortgage Notes Maturing During 1994 Three of the mortgage notes payable secured by four of the hotels owned by the Trust matured during 1994. The mortgage note, which matured in April 1994, for which the principal amount outstanding was $4,195,000 at December 31, 1993, was extended to January 1995 and management of the Trust is currently negotiating the refinance or extension of the note. The mortgage note which matured in June 1994, for which the principal amount outstanding was $9,478,000 at December 31, 1993, was extended to June 30, 1997. The third mortgage note, which matured during August 1994, for which the principal amount outstanding was $2,010,000 at December 31, 1993, was extended to December 31, 1994 and management of the Trust is currently negotiating the refinance or extension of the note. Dallas Park Central Hotel The management contract and franchise agreement with Marriott Corporation with respect to the Dallas property expired in March 1994. Since March 1994, the hotel has been managed by Sage Mountain View, Inc. and is being operated as an independent hotel (the Dallas Park Central Hotel). Mortgage Note Receivable in Default The borrower under the Trust's mortgage note receivable secured by the Ramada Inn, Merrimack, New Hampshire with an outstanding principal balance of $1,427,000 at December 31, 1993 is currently in default. Management of the Trust is pursuing all remedies including foreclosure. A foreclosure auction of the property is currently scheduled for November 17, 1994. Secured Notes Payable and Revolving Line of Credit The Trust made the principal payment required under the terms of the Credit Agreement on August 31, 1994 as well as the optional amount which canceled 444,381 of the warrants previously issued to the Senior Lenders. The maturity date of the Restructured Debt has been extended to May 31, 1995. F-38 62 SCHEDULE IV INDEBTEDNESS OF AND TO RELATED PARTIES (NOT CURRENT)
HOTEL INVESTORS TRUST: Deductions Balance at ------------------------- Balance at Beginning of Amounts Amounts End of Description Period Additions Collected Written Off Period - - - -------------------------------------------------------------------------------------------------------------- INDEBTEDNESS OF RELATED PARTIES: DECEMBER 31, 1991: Loans to Hotel Investors Corporation (1) (3) $44,099,000 $11,000,000 $(1,202,000) $53,897,000 John F. Rothman (2) 800,000 800,000 ------------------------------------------------------------------- $44,899,000 $11,000,000 $(1,202,000) $54,697,000 =================================================================== DECEMBER 31, 1992: Loans to Hotel Investors Corporation (1) (4) $53,897,000 $34,004,000 $ (411,000) $87,490,000 John F. Rothman (2) 800,000 800,000 ------------------------------------------------------------------- $54,697,000 $34,004,000 $ (411,000) $88,290,000 =================================================================== DECEMBER 31, 1993: Loans to Hotel Investors Corporation (1) $87,490,000 $ 2,519,000 $(2,523,000) $87,486,000 John F. Rothman (2) 800,000 800,000 ------------------------------------------------------------------- $88,290,000 $ 2,519,000 $(2,523,000) $88,286,000 ===================================================================
(1) The Notes from the Corporation earn interest at various rates ranging from the bank's prime rate to 12% per annum. Effective January 1, 1993 the term of these notes were amended, see Note 6 of Notes to Financial Statements. (2) On December 31, 1987, in connection with its acquisition of the Atlanta partnership a working capital loan of $890,000 was assumed by John F. Rothman, General Partner of Western Host Atlanta Partners and President and Chief Executive Officer of the Trust. The note from Mr. Rothman earns interest at 10% per annum. (3) In September 1991, in connection with the acquisition of the Milwaukee Marriott Hotel, Hotel Investors Corporation became the 51% General Partners in the new Partnership and assumed $11,000,000 of the mortgage debt due to the Trust. For Financial Statement purposes, the results of the Milwaukee Marriott are consolidated and intercompany transactions are eliminated. See Note 5 of Notes to Financial Statements. (4) In December 1992, in connection with the Debt Restructuring the Trust and Corporation restructured the existing borrowings from Trust to included all outstanding borrowings plus accrued but unpaid rent and interest as of December 31, 1992. See Note 6 of Notes to Financial Statements. F-39 63 SCHEDULE IV (Continued) INDEBTEDNESS OF AND TO RELATED PARTIES (NOT CURRENT)
HOTEL INVESTORS CORPORATION: Deductions Balance at -------------------------- Balance at Beginning of Amounts Amounts End of Description Period Additions Collected Written Off Period - - - --------------------------------------------------------------------------------------------------------------- INDEBTEDNESS OF RELATED PARTIES: DECEMBER 31, 1991: Loans to Hotel Investors Trust (1) (2) $44,099,000 $11,000,000 $(1,202,000) $53,897,000 ==================================================================== DECEMBER 31, 1992: Loans to Hotel Investors Trust (1) (3) $53,897,000 $34,004,000 $ (411,000) $87,490,000 ==================================================================== DECEMBER 31, 1993: Loans to Hotel Investors Trust (1) $87,490,000 $ 2,519,000 $(2,523,000) $87,486,000 ====================================================================
(1) The Notes from the Corporation earn interest at various rates ranging from the bank's prime rate to 12% per annum. Effective January 1, 1993 the term of these notes were amended, see Note 6 of Notes to Financial Statements. (2) In September 1991, in connection with the acquisition of the Milwaukee Marriott Hotel, Hotel Investors Corporation became the 51% General Partners in the new Partnership and assumed $11,000,000 of the mortgage debt due to the Trust. For Financial Statement purposes, the results of the Milwaukee Marriott are consolidated and intercompany transactions are eliminated. See Note 5 of Notes to Financial Statements. (3) In December 1992, in connection with the Debt Restructuring the Trust and Corporation restructured the existing borrowings from Trust to included all outstanding borrowings plus accrued but unpaid rent and interest as of December 31, 1992. See Note 6 of Notes to Financial Statements. F-40 64 SCHEDULE IX SHORT-TERM BORROWINGS
Weighted Average average Category of Weighted Maximum amount interest aggregate Balance at average amount outstanding rate short-term end of interest outstanding during during borrowings period rate during the period the period period (2) (3) - - - ---------------------------------------------------------------------------------------------------- HOTEL INVESTORS TRUST: DECEMBER 31, 1991: Notes payable to banks (1) $ 71,318,000 9.00% $ 71,545,000 $ 68,166,000 8.91% Senior Notes Payable $ 56,905,000 9.21% $ 60,000,000 $ 58,095,000 9.95% DECEMBER 31, 1992: Notes payable to banks (1) $ 71,318,000 7.00% $ 71,318,000 $ 71,318,000 7.29% Senior Notes Payable $ 56,905,000 7.00% $ 56,905,000 $ 56,905,000 7.29% DECEMBER 31, 1993: Secured notes payable and revolving line of credit $128,802,208 7.00% $133,785,234 $130,785,234 7.94% - - - ----------------------------------------------------------------------------------------------------
(1) Represents borrowings under the Trust's line of credit. See Note 2 of Notes to Financial Statements. (2) Computed using the weighted average of the outstanding balances at the end of each month. For the Corporation, the average amount outstanding for the period is computed using the period the line of credit was available to the Corporation. (3) Computed using the weighted average of the month-end balance and interest rate for each month in which a balance was outstanding. F-41 65 SCHEDULE X SUPPLEMENTARY STATEMENTS OF OPERATIONS INFORMATION
Charged to Costs and Expenses ------------------------------------------------- Year Ended December 31, Item 1993 1992 1991 - - - ------------------------------------------------------------------------------------------------- HOTEL INVESTORS TRUST: Amortization: Amortization of Debt Issue Costs $ 39,000 $ 39,000 $ 188,000 Amortization of Franchise Costs 2,000 2,000 145,000 HOTEL INVESTORS CORPORATION: Maintenance and Repairs $5,837,000 $5,893,000 $5,677,000 Amortization: Franchise Costs 30,000 29,000 155,000 Real and Personal Property Taxes 3,587,000 3,915,000 4,110,000 Advertising Costs 438,000 695,000 659,000
F-42 66 SCHEDULE XI REAL ESTATE AND ACCUMULATED DEPRECIATION DECEMBER 31, 1993
HOTEL INVESTORS TRUST Initial Cost to Company ----------------------- Building and Description Encumbrances Land Improvements - - - ------------------------------------------------------------------------------ HOTEL ASSETS: Embassy Suites - Phoenix, AZ $9,478,177 $2,889,000 $11,658,000 Plaza Hotel - Tucson, AZ (2) 898,000 3,809,000 Vagabond Inn - Rosemead, CA 700,000 2,100,000 Vagabond Inn - Sacramento, CA 700,000 3,200,000 Vagabond Inn - Woodland Hills, CA 1,200,000 3,200,000 Hilton Inn - Gainesville, FL 1,002,000 3,759,000 Holiday Inn and Conference Center - Jacksonville, FL 2,000,000 11,345,000 Sheraton Inn - New Port Richey, FL 1,003,000 5,445,000 Holiday Inn - Albany, GA 796,000 4,980,000 Holiday Inn - Brunswick, GA 397,000 2,954,000 Best Western Riverfront Inn - Savannah, GA 431,000 3,745,000 Bay Valley Hotel - Bay City, MI 4,195,174 2,500,000 5,472,000 Bourbon Street Hotel and Casino - Las Vegas, NV 8,435,000 8,668,000 King 8 Hotel and Casino - Las Vegas, NV 177,885 5,396,000 13,579,000 Best Western Airport Inn - Albuquerque, NM (3) 285,000 4,880,000 Best Western Mesilla Valley Inn - Las Cruces, NM 1,150,000 3,295,000 Ramada Inn - Fayetteville, NC 520,000 2,330,000 Columbus Best Western - Columbus, OH 854,000 2,300,000 Portland Inn - Portland, OR } 2,009,636 1,900,000 3,768,000 Riverside Inn - Portland, OR } 1,300,000 3,375,000 Best Western South - Austin, TX 2,100,000 2,776,000 Marriott Park Central - Dallas, TX 5,446,534 (3) 3,814,000 8,018,000 Best Western Airport Inn - El Paso, TX 1,400,000 3,409,000 Residence Inn - Tysons Corner, VA 6,416,696 1,418,000 4,119,000 Days Inn Town Center - Seattle, WA 250,000 1,483,000 Meany Tower Hotel - Seattle, WA (3) 1,700,000 6,270,000 Sixth Avenue Inn - Seattle, WA 1,150,000 1,570,000 Tyee Motor Inn - Tumwater, WA (3) 1,008,000 1,562,000 - - - ------------------------------------------------------------------------------ $27,724,102 $47,196,000 $133,069,000 - - - ------------------------------------------------------------------------------ Costs Subsequent Gross amount to at which carried Acquisition at close of period ------------------------------------------------ (1) (1) Accumulated Building and Building and Depreciation(4) Description Improvements Land Improvements Amortization - - - ------------------------------------------------------------------------------------------------------ HOTEL ASSETS: Embassy Suites - Phoenix, AZ $539,000 $2,889,000 $12,197,000 $3,341,000 Plaza Hotel - Tucson, AZ 24,000 898,000 3,833,000 1,005,000 Vagabond Inn - Rosemead, CA 700,000 2,100,000 437,000 Vagabond Inn - Sacramento, CA 700,000 3,200,000 666,000 Vagabond Inn - Woodland Hills, CA 1,200,000 3,200,000 666,000 Hilton Inn - Gainesville, FL 1,534,000 1,002,000 5,293,000 1,006,000 Holiday Inn and Conference Center - Jacksonville, FL 680,000 2,000,000 12,025,000 11,290,000 Sheraton Inn - New Port Richey, FL 169,000 1,003,000 5,614,000 4,414,000 Holiday Inn - Albany, GA 123,000 796,000 5,103,000 665,000 Holiday Inn - Brunswick, GA 122,000 397,000 3,076,000 1,936,000 Best Western Riverfront Inn - Savannah, GA 187,000 431,000 3,932,000 1,827,000 Bay Valley Hotel - Bay City, MI 1,159,000 2,501,000 6,631,000 1,808,000 Bourbon Street Hotel and Casino - Las Vegas, NV 5,446,000 8,435,000 14,114,000 13,786,000 King 8 Hotel and Casino - Las Vegas, NV 1,938,000 5,396,000 15,517,000 7,969,000 Best Western Airport Inn - Albuquerque, NM 285,000 4,880,000 1,066,000 Best Western Mesilla Valley Inn - Las Cruces, NM 28,000 860,000 3,323,000 728,000 Ramada Inn - Fayetteville, NC 531,000 520,000 2,861,000 2,410,000 Columbus Best Western - Columbus, OH 854,000 2,300,000 131,000 Portland Inn - Portland, OR } 213,000 2,019,811 3,981,000 785,000 Riverside Inn - Portland, OR } 222,000 1,419,811 3,597,000 703,000 Best Western South - Austin, TX 342,000 2,100,000 3,118,000 2,288,000 Marriott Park Central - Dallas, TX 578,000 3,815,000 8,596,000 4,172,000 Best Western Airport Inn - El Paso, TX 74,000 1,400,000 3,483,000 715,000 Residence Inn - Tysons Corner, VA 274,000 1,418,000 4,393,000 1,214,000 Days Inn Town Center - Seattle, WA 17,000 250,000 1,500,000 1,063,000 Meany Tower Hotel - Seattle, WA 207,000 1,819,811 6,477,000 1,302,000 Sixth Avenue Inn - Seattle, WA 25,000 1,150,000 1,595,000 1,580,000 Tyee Motor Inn - Tumwater, WA 959,000 945,000 2,521,000 456,000 - - - ------------------------------------------------------------------------------------------------------ $15,391,000 $47,204,433 $148,460,000 $69,429,000 --------------------------- Land 47,204,433 Furniture and Equipment 28,505,567 24,823,000 ------------ ----------- Total hotels and land under lease $224,170,000 (5) $94,252,000 ============ =========== Year Date Description Construction Acquired Life - - - ---------------------------------------------------------------------- HOTEL ASSETS: Embassy Suites - Phoenix, AZ 1981 12/13/83 35 Plaza Hotel - Tucson, AZ 1971 9/16/86 35 Vagabond Inn - Rosemead, CA 1974 9/16/86 35 Vagabond Inn - Sacramento, CA 1975 9/16/86 35 Vagabond Inn - Woodland Hills, CA 1973 9/16/86 35 Hilton Inn - Gainesville, FL 1974 11/24/86 35 Holiday Inn and Conference Center - Jacksonville, FL 1959/1975 9/16/86 35 Sheraton Inn - New Port Richey, FL 1973 12/11/86 35 Holiday Inn - Albany, GA 1989 6/9/89 35 Holiday Inn - Brunswick, GA 1972 12/11/86 35 Best Western Riverfront Inn - Savannah, GA 1971 12/11/86 35 Bay Valley Hotel - Bay City, MI 1973 5/10/84 35 Bourbon Street Hotel and Casino - Las Vegas, NV 1964/1975 2/01/88 35 King 8 Hotel and Casino - Las Vegas, NV 1974/1979 2/1/88 35 Best Western Airport Inn - Albuquerque, NM 1980 9/16/86 35 Best Western Mesilla Valley Inn - Las Cruces, NM 1974 9/16/86 35 Ramada Inn - Fayetteville, NC 1973 12/11/86 35 Columbus Best Western - Columbus, OH 1971 1/24/92 35 Portland Inn - Portland, OR } 1962 9/16/86 35 Riverside Inn - Portland, OR } 1964 9/16/86 35 Best Western South - Austin, TX 1973 9/16/86 35 Marriott Park Central - Dallas, TX 1972 9/09/88 35 Best Western Airport Inn - El Paso, TX 1974 9/16/86 35 Residence Inn - Tysons Corner, VA 1984 7/01/84 35 Days Inn Town Center - Seattle, WA 1957 9/16/86 13 Meany Tower Hotel - Seattle, WA 1932 9/16/86 35 Sixth Avenue Inn - Seattle, WA 1959 9/16/86 13 Tyee Motor Inn - Tumwater, WA 1961 2/17/87 35
(1) As of December 31, 1993, real estate and furniture and equipment have a cost of $147,231,000 for federal income tax purposes. (2) Land cost includes costs allocated to leasehold interest in land of $548,000 at the Tucson property. (3) Land cost represents costs allocated to leasehold interest in land. (4) Includes reserve for losses as discussed in Notes 1 and 3 of Notes to the Financial Statements. (5) Substantially all properties are encumbered by the Secured Note Payable and Revolving Line of Credit. (continued) F-43 67 SCHEDULE XI (Continued) REAL ESTATE AND ACCUMULATED DEPRECIATION A reconciliation of the Trust's investment in real estate, furniture and fixtures and related accumulated depreciation is as follows:
Year Ended December 31, 1993 1992 1991 ------------ ------------ ------------ REAL ESTATE AND FURNITURE AND FIXTURES: Balance at beginning of period $246,356,000 $258,902,000 $278,335,000 Additions during period: Acquisitions 0 0 0 Improvements 1,372,000 9,384,000 3,217,000 U.S. Equity Step-up Basis 899,000 0 0 Reclass of construction in progress 0 (113,000) 0 Deductions during period: Sales of properties (24,457,000) (21,817,000) (22,650,000) ------------ ------------ ------------ Balance at end of Period 224,170,000 246,356,000 258,902,000 ------------ ------------ ------------ LAND UNDER LEASE: Balance at beginning of period 0 0 0 Sales during period ------------ ------------ ------------ Balance at end of period 0 0 0 ------------ ------------ ------------ $224,170,000 $246,356,000 $258,902,000 ============ ============ ============ ACCUMULATED DEPRECIATION: Balance at beginning of period $105,338,000 $108,134,000 $ 99,080,000 Additions - depreciation expense 5,630,000 6,753,000 8,696,000 Deductions - sales of properties (19,085,000) (12,746,000) (7,518,000) Provision for investment losses: St. Louis, MO 858,000(1)(3) Dallas, TX 459,000(3) 600,000(3) Jacksonville, FL 272,000(3) 1,050,000(2)(3) Savannah, GA 300,000(3) 760,000(2)(3) New Port Richey, FL 200,000(1)(3) Brunswick, GA 150,000(1)(3) 440,000(2)(3) Merrimack, NH 1,000,000(3) Fayetteville, NC 100,000(1)(3) Cumberland, GA 697,000(2)(3) 576,000(3) Northlake, GA 250,000(2)(3) Bourbon Street, NV 5,500,000(4) Irving, TX 200,000(3) Rosemead, CA 30,000(3) ------------ ------------ ------------ 2,369,000 3,197,000 7,876,000 ------------ ------------ ------------ Allocation of reserve for losses ------------ ------------ ------------ Balance at end of period $ 94,252,000 $105,338,000 $108,134,000 ============ ============ ============
(1) Provision for loss was recorded primarily as a result of all cash offers to sell hotels, previously identified for sale, at amounts lower than their current net book values. (2) Provision for loss was recorded as a result of the deterioration of hotels in the Southeast and the acceptance of offers for the sale of hotels at amounts less than net book value. (3) Provision for loss was recorded as a result of the difference between the net book value of properties which had been identified for sale and their estimated fair values. (4) Provision for loss was recorded as a result of the difference between the net book value and the discounted future cash flows for properties held for investment which had undiscounted future cash flows that were less than net book value. F-44 68 SCHEDULE XI REAL ESTATE AND ACCUMULATED DEPRECIATION DECEMBER 31, 1993
Initial Cost to Company HOTEL INVESTORS CORPORATION ----------------------- (3) Land and Building and Description Encumbrances Leaseholds Improvements - - - --------------------------------------------------------------------------------- HOTEL ASSETS: Embassy Suites - Phoenix, AZ Plaza Hotel - Tucson, AZ $595,000 Hilton Inn - Gainesville, FL Holiday Inn and Conference Center - Jacksonville, FL 1,587,000 Sheraton Inn - New Port Richey, FL Holiday Inn - Albany, GA Holiday Inn - Brunswick, GA Bay Valley Hotel - Bay City, MI Best Western North - Columbus, OH Best Western Airport Inn - Albuquerque, NM 325,000 Best Western Mesilla Valley Inn - Las Cruces, NM Ramada Inn - Fayetteville, NC Portland Inn - Portland, OR 2,185,000 Riverside Inn - Portland, OR 2,123,000 87,000 Best Western South - Austin, TX Best Western Airport Inn - El Paso, TX Residence Inn - Tysons Corner, VA Days Inn Town Center - Seattle, WA 429,000 4,000 Meany Tower Hotel - Seattle, WA 3,437,000 302,000 Sixth Avenue Inn - Seattle, WA 1,515,000 24,000 Best Western Inn - Savannah, GA Marriott Hotel - Milwaukee, WI $13,381,000 2,500,000 17,422,000 ------------------------------------------- $13,381,000 $14,696,000 $17,839,000 ------------------------------------------- Costs Subsequent Gross amount to at which carried Acquisition at close of period --------------------------------------------- (1) (1) Accumulated Building and Land and Building and Depreciation/ Description Improvements Leaseholds Improvements Amortization (2) - - - ---------------------------------------------------------------------------------------------------- HOTEL ASSETS: Embassy Suites - Phoenix, AZ $45,000 $45,000 $5,000 Plaza Hotel - Tucson, AZ 0 $978,000 149,000 Hilton Inn - Gainesville, FL 39,000 39,000 8,000 Holiday Inn and Conference Center - Jacksonville, FL 126,000 1,587,000 126,000 1,601,000 Sheraton Inn - New Port Richey, FL 24,000 24,000 2,000 Holiday Inn - Albany, GA 64,000 64,000 4,000 Holiday Inn - Brunswick, GA 62,000 62,000 4,000 Bay Valley Hotel - Bay City, MI 179,000 179,000 19,000 Best Western North - Columbus, OH 37,000 37,000 2,000 Best Western Airport Inn - 0 Albuquerque, NM 0 372,000 0 68,000 Best Western Mesilla Valley Inn - 0 Las Cruces, NM 0 252,000 0 17,000 Ramada Inn - Fayetteville, NC 15,000 15,000 1,000 Portland Inn - Portland, OR 78,000 2,185,000 78,000 426,000 Riverside Inn - Portland, OR 25,000 2,123,000 112,000 427,000 Best Western South - Austin, TX 35,000 35,000 4,000 Best Western Airport Inn - El Paso, TX 18,000 18,000 3,000 Residence Inn - Tysons Corner, VA 33,000 33,000 4,000 Days Inn Town Center - Seattle, WA 204,000 429,000 208,000 206,000 Meany Tower Hotel - Seattle, WA 66,000 3,437,000 368,000 731,000 Sixth Avenue Inn - Seattle, WA 118,000 1,515,000 142,000 641,000 Best Western Inn - Savannah, GA 39,000 39,000 1,000 Marriott Hotel - Milwaukee, WI 3,499,000 2,500,000 20,921,000 953,000 ----------------------------------------------------- $4,706,000 $15,378,000 $22,545,000 $5,276,000 ----------------------- Land 15,378,000 Furniture and Equipment 16,867,000 12,183,000 ---------- ---------- Total hotels and land under lease 54,790,000 17,459,000 ========== ========== Year of Date Construction Acquired Life - - - ------------------------------------------------------------------------------------- HOTEL ASSETS: Embassy Suites - Phoenix, AZ 1981 12/13/83 35 Plaza Hotel - Tucson, AZ 1971 9/16/86 35 Hilton Inn - Gainesville, FL 1974 11/24/86 35 Holiday Inn and Conference Center - Jacksonville, FL 1959/1975 9/16/86 35 Sheraton Inn - New Port Richey, FL 1973 12/11/86 35 Holiday Inn - Albany, GA 1989 6/9/89 35 Holiday Inn - Brunswick, GA 1972 12/11/86 35 Bay Valley Hotel - Bay City, MI 1973 5/10/84 35 Best Western North - Columbus, OH Best Western Airport Inn - Albuquerque, NM 1980 9/16/86 35 Best Western Mesilla Valley Inn - Las Cruces, NM 1974 9/16/86 35 Ramada Inn - Fayetteville, NC 1973 12/11/86 35 Portland Inn - Portland, OR 1962 9/16/86 35 Riverside Inn - Portland, OR 1964 9/16/86 35 Best Western South - Austin, TX 1973 9/16/86 35 Best Western Airport Inn - El Paso, TX 1974 9/16/86 35 Residence Inn - Tysons Corner, VA 1984 7/01/84 35 Days Inn Town Center - Seattle, WA 1957 9/16/86 13 Meany Tower Hotel - Seattle, WA 1932 9/16/86 35 Sixth Avenue Inn - Seattle, WA 1959 9/16/86 13 Best Western Inn - Savannah, GA 1961 2/17/87 35 Marriott Hotel - Milwaukee, WI (1) As of December 31, 1993, real estate and furniture and equipment have a cost of $38,254,000 for federal tax income purposes. (2) Includes reserve for losses discussed in Notes 1 and 3 of Notes to Financial Statements. (3) Amount excludes $14,084,000 second trust deed note payable to the Trust. And $1,102,000 third trust deed note payable. See Note 6 of Notes to Financial Statements. (Continued)
F-45 69 SCHEDULE XI (Continued) REAL ESTATE AND ACCUMULATED DEPRECIATION A reconciliation of the Corporation's investment in real estate, furniture and fixtures and related accumulated depreciation is as follows:
Year Ended December 31, 1993 1992 1991 ----------- ----------- ----------- REAL ESTATE AND FURNITURE AND FIXTURES: Balance at beginning of year $51,972,000 $ 51,199,000 $27,571,000 Additions during period: Improvements 5,205,000 1,290,000 1,334,000 Acquisitions 22,585,000 Deductions: Reclass 388,000 Sales of properties (2,775,000) (517,000) (291,000) Balance at end of year $54,790,000 $ 51,972,000 $51,199,000 ACCUMULATED DEPRECIATION: Balance at beginning of year $15,413,000 $ 12,377,000 $ 9,779,000 Additions - Depreciation expense 3,602,000 3,373,000 2,503,000 Deductions - Sales of properties (1,842,000) (337,000) (114,000) Provision for investment losses (1): Milwaukee, WI 713,000 Reclass 286,000 0 (504,000) ---------------------------------------------------- Balance at end of year $17,459,000 $105,338,000 $12,377,000 ====================================================
(1) Provision for loss was recorded as a result of the difference between the net book value and the discounted future cash flows for the properties held for investment with undiscounted future cash flows that were less than net book value. F-46 70 SCHEDULE XII MORTGAGE LOANS ON REAL ESTATE DECEMBER 31, 1993
Principal amount of loans Carrying subject Face Amount of to delinquent Interest Final Periodic Prior Amount of Mortgages principal or Description Rate Maturity Payment Liens Mortgages (1) interest - - - ------------------------------------------------------------------------------------------------------------------------------------ HOTEL INVESTORS TRUST First Mortgages: Vagabond Inns - Stockton and 10.00% 1996 (2) no $ 1,995,000 $ 1,816,000 Modesto, CA Vagabond Inn - Reno, NV 12.00% 1994 (2) no 1,600,000 1,448,000 Ramada Inn - Jefferson City, MO 11.00% 1996 (3) no 4,500,000 1,784,000 Days Inn - Albany, GA 10.00% 1996 $12,554(5) no 1,050,000 827,000 Best Western - Merrimack, NH 9.00% 1997 11,587(6) no 1,440,000 1,426,000 Days Inn - Spartanbug, SC 9.00% 1998 5,954(7) no 775,000 736,000 Days Inn - Irving, TX 9.00% 1997 13,276(8) no 1,650,000 1,531,000 Vangage Hotel - Tucker, GA 9.00% 1998 9,000(9) no 1,985,000 1,976,000 Second Mortgages: Viscount Hotel - Dallas, TX 8.75% 2017 1,982(4) yes 264,000 238,000 Allowance for loan losses (140,000) ------------------------------------------ $15,259,000 $11,642,000 $0 ==========================================
(1) As of December 31, 1993, the aggregate cost (before allowance for loan losses) for federal income tax purposes is not significantly different from that used for book purposes. (2) The notes provide for monthly payments of interest plus additional annual payments based on a percentage of the hotels' sales, a portion of which is applied to principal. (3) Principal and interest due monthly based on a 30 year amortization schedule with unpaid principal of $1,750,000 due in December 1996. (4) Plus contingent interest of 4% of room sales of the hotel. (5) Principal and interest due monthly based on a 10 year amortization schedule with additional principal of $50,000 due in November 1993 and all unpaid principal of $591,000 due in November 1996. (6) Principal and interest due monthly based on a 30 year amortization schedule with unpaid principal of $1,382,000 due in July 1997. (7) Principal and interest due montly based on a 30 year amortization schedule with additional principal of $35,000 due in September 1993 and all unpaid principal of $704,00 due in September 1998. (8) Principal and interest due monthly based on a 30 year amortization schedule with additional principal of $90,000 due in March 1993 and all unpaid principal of $1,485,000 due in March 1997. (9) Principal and interest due monthly based on a 25 year amortization schedule with unpaid principal of $1,857,000 due in June 1998. F-47 71 SCHEDULE XII (Continued) RECONCILIATION OF MORTGAGE LOANS
Year Year Year Ended Ended Ended December 31, December 31, December 31, 1993 1992 1991 ----------------------------------------------------- Balance at beginning of year $10,010,000 $10,669,000 $ 21,749,000 Additions - New Mortgage Loans 1,985,000 3,865,000 1,950,000 Reclassification - Reclassification of indebtedness of and to related parties (1) (11,000,000) Deductions - Principal repayments (353,000) (957,000) (1,039,000) Amortization of discount Allowance for loan loss (223,000) (991,000) Discount for pre-payment (3) (90,000) Cancellation of Note (2) (3,254,000) ----------------------------------------------------- Balance at end of year $11,642,000 $10,010,000 $ 10,669,000 =====================================================
(1) In September 1991, in connection with the acquisition of the Milwaukee Marriott Hotel, Hotel Investors Corporation became the 51% General Partner in the new Partnership and assumed the mortgage debt. For Financial statement purposes, the results of the Milwaukee Marriott are consolidated with intercompany transactions eliminated. See Note 4 of Notes to Financial Statements. (2) In January 1992, in lieu of foreclosure, the Trust cancelled its note and released its mortgage on the Columbus Best Western North. (3) The Trust discounted the Note on the Brunswick, Georgia property as consideration for the early pay-off of the note. F-48 -----END PRIVACY-ENHANCED MESSAGE-----